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strategic management 5th

Strategic Management For Hospitality And Tourism 1st Edition Fevzi Okumus Levent Altinay Prakash Chathoth - Solutions

If all the coal in the ground, Q, is to be consumed in two years and the demand for coal is Qt = A(pt)εin each year t where ε is a constant demand elasticity, what is the price of coal each year? M
You can sell a barrel of oil today for p dollars.Assuming no inflation and no storage cost, how high would the price have to be next year for you to sell the oil next year rather than now? M
In the figure in Solved Problem 15.5, suppose that the government’s demand curve remains constant at D1 g but the government starts to tax private earnings, collecting 1% of all interest earnings. How does the capital market equilibrium change? What is the effect on private borrowers?3.
To virtually everyone’s surprise, the Washington Nationals baseball team earned a pretax profit of$20 million in 2005, compared to a $10 million loss when the team was the Montreal Expos in 2004(Heath, Thomas, “Nationals’ Expected ’05 Profit Is $20 Million,” Washington Post, June 21,
As discussed in Solved Problem 15.3, Lewis Wolff and his investment group bought the Oakland A’s baseball team for $180 million in 2005. Reportedly, Hall-of-Famer Reggie Jackson offered $25 million more but was rebuffed (Forbes, 2005). How would the calculations in Solved Problem 15.3 change if
Your gas-guzzling car gets only 10 miles to the gallon and has no resale value, but you are sure that it will last five years. You know that you can always buy a used car for $8,000 that gets 20 miles to the gallon. A gallon of gas costs $2 and you drive 18“In Other Words . . .” San Francisco
Many retirement funds charge an administrative fee equal to 0.25% on managed assets. Suppose that Alexx and Spenser each invest $5,000 in the same stock this year. Alexx invests directly and earns 5%a year. Spenser uses a retirement fund and earns 4.75%. After 30 years, how much more will Alexx
Dell Computer makes its suppliers wait 37 days on average to be paid for their goods; however, Dell is paid by its customers immediately. Thus, Dell earns interest on this float, the money that it is implicitly borrowing. If Dell can earn an annual interest rate of 4%, what is this float worth to
With the end of the Cold War, the U.S. government decided to downsize the military. Along with a pink slip, the government offered ex-military personnel their choice of $8,000 a year for 30 years or an immediate lump-sum payment of $50,000. The lump-sum option was chosen by 92% of enlisted
A firm is considering an investment in which its cash flow is π1 = $1 (million), π2 = -$12, π3 = $20, and πt = 0 for all other t. The interest rate is 7%.Use the net present value rule to determine whether the firm should make the investment. Can the firm use the internal rate of return rule to
At a 10% interest rate, do you prefer to buy a phone for $100 or to rent the same phone for $10 a year? Does your answer depend on how long you think the phone will last? M
If you spend $4 a day on a latte (in real dollars) for the rest of your life (essentially forever), what is your present discounted value at a 3% interest rate? M
Discussing the $350 price of a ticket for one of her concerts, Barbra Streisand said, “If you amortize the money over 28 years, it’s $12.50 a year. So is it worth $12.50 a year to see me sing? To hear me sing live?”18 Under what condition is it useful for an individual to apply Ms.
You are buying a new $20,000 car and have the option to pay for the car with a 0% loan or to receive $500 cash back at the time of the purchase. With the loan, you pay $5,000 down when you purchase the car and then make three $5,000 payments, one at the end of each year of the loan. You currently
Two different teams offer a professional basketball player contracts for playing this year. Both contracts are guaranteed, and payments will be made even if the athlete is injured and cannot play. Team A’s contract would pay him $1 million today. Team B’s contract would pay him $500,000 today
You want to buy a room air conditioner. The price of one machine is $200. It costs $20 a year to operate. The price of another air conditioner is $300, but it costs only $10 a year to operate. Assuming that both machines last 10 years, which is a better deal? (Do you need to do extensive
You plan to buy a used refrigerator this year for$200 and to sell it when you graduate in two years.Assuming that you can get $100 for the refrigerator at that time, there is no inflation, and the interest rate is 5%, what is the true cost (your current outlay minus the resale value in current
Pacific Gas and Electric sent its customers a comparison showing that a person could save $80 per year in gas, water, and detergent expenses by replacing a traditional clothes washer with a new tumble-action washer. Suppose that the interest rate is 5%. You expect your current washer to die in five
How much money do you have to put into a bank account that pays 10% interest compounded annually to receive annual payments of $200? M
If you buy a car for $100 down and $100 a year for two more years, what is the present value of these payments at a 5% interest rate? If the interest rate is i? M
An economic consultant explaining the effect on labor demand of increasing health care costs, interviewed for the Wall Street Journal’s Capital column(Wessel, David, “Health-Care Costs Blamed for Hiring Gap,” March 11, 2004, A2), states, “Medical costs are rising more rapidly than anything
What is a monopoly’s demand for labor if it uses a fixed-proportions production function in which each unit of output takes one unit of labor and one unit of capital?
Does a shift in the supply curve of labor have a greater effect on wages if the output market is competitive or if it is monopolistic? Explain.
A monopoly with a Cobb-Douglas production function, Q = (Lρ + Kρ)1/ρ, faces a constant elasticity demand curve. What is its marginal revenue product of labor? M
The estimated Cobb-Douglas production function for a U.S. tobacco products firm is q = L0.2K0.3(“Returns to Scale in U.S. Manufacturing” application, Chapter 6). Derive the marginal revenue product of labor for this firm. M
Show that the quantity of labor or capital that a firm demands decreases with a factor’s own factor price and increases with the output price when the production function is Cobb-Douglas as in Equations 15.12 and 15.13. M
Georges, the owner of Maison d’Ail, earned his coveted Michelin star rating by smothering his dishes in freshly minced garlic. Georges knows that he can save labor costs by using less garlic, albeit with a reduction in quality. If Georges puts g garlic Exercises = exercise is available on
If a local government starts collecting an ad valorem tax of α on the revenue of a competitive firm (and all other firms are located outside this jurisdiction), what happens to the firm’s demand curve for labor?(Hint: See Solved Problem 15.1.)
In Solved Problem 14.4, what fixed cost would result in four firms operating in the monopolistically competitive equilibrium? What are the equilibrium quantities and prices?7. Challenge
Exercise 6.5 shows that a monopolistically competitive firm maximizes its profit where it is operating at less than full capacity. Does this result depend upon whether firms produce identical or differentiated products? Why?
Show that a monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at which the average cost curve reaches its minimum (the bottom of a U-shaped average cost curve). The firm’s minimum
Does an oligopoly or a monopolistically competitive firm have a supply curve? Why or why not?(Hint: See the discussion in Chapter 11 of whether a monopoly has a supply curve.)
In a monopolistically competitive market, the government applies a specific tax of $1 per unit of output. What happens to the profit of a typical firm in this market? Does the number of firms in the market change? Why?
What is the effect of a government subsidy that reduces the fixed cost of each firm in an industry in a Cournot monopolistic competition equilibrium?
Firms in some industries with a small number of competitors earn normal economic profit. The Wall Street Journal (Gomes, Lee, “Competition Lives On in Just One PC Sector,” March 17, 2003, B1)reports that the computer graphics chips industry is one such market. Two chip manufacturers, nVidia and
In February 2005, the U.S. Federal Trade Commission (FTC) went to court to undo the January 2000 takeover of Highland Park Hospital by Evanston Northwestern Healthcare Corp. The FTC accused Evanston Northwestern of antitrust violations by using its post-merger market power in the Evanston hospital
At a busy intersection on Route 309 in Quakertown, Pennsylvania, the convenience store and gasoline station, Wawa, competes with the service and gasoline station, Fred’s Sunoco. In the Nash-Bertrand equilibrium with product differentiation competition for gasoline sales, the demand for Wawa’s
In the Coke and Pepsi example, what is the effect of a specific tax, τ, on the equilibrium prices? (Hint:What does the tax do to the firm’s marginal cost?You do not have to use math to provide a qualitative answer to this problem.)
Solve for the Nash-Bertrand equilibrium for the firms described in Exercise 5.3 if Firm 1’s marginal cost is $30 per unit and Firm 2’s marginal cost is$10 per unit. M
Solve for the Nash-Bertrand equilibrium for the firms described in Exercise 5.3 if both firms have a marginal cost of $0 per unit. M
Suppose that identical duopoly firms have constant marginal costs of $10 per unit. Firm 1 faces a demand function of q1 = 100 - 2p1 + p2, where q1 is Firm 1’s output, p1 is Firm 1’s price, and p2 is Firm 2’s price.Similarly, the demand Firm 2 faces is q2 = 100 -2p2 + p1. Solve for the
Two firms, each in a different country, sell homogeneous output in a third country. Government 1 subsidizes its domestic firm by s per unit. The other government does not react. In the absence of government intervention, the market has a NashCournot equilibrium. Suppose demand is linear, p = 1 - q1
Show the effect of a subsidy on Firm 1’s bestresponse function in Solved Problem 14.3 if the firm faces a general demand function p(Q). M
Determine the Stackelberg equilibrium with one leader firm and two follower firms if the market demand curve is linear and each firm faces a constant marginal cost, m, and no fixed cost. M
Duopoly quantity-setting firms face the market demand p = 150 - q1 - q2.Each firm has a marginal cost of $60 per unit.a. What is the Nash-Cournot equilibrium?b. What is the Stackelberg equilibrium when Firm 1 moves first? M
An incumbent firm, Firm 1, faces a potential entrant, Firm 2, that has a lower marginal cost. The market demand curve is p = 120 - q1 - q2. Firm 1 has a constant marginal cost of $20, while Firm 2’s is $10.a. What are the Nash-Cournot equilibrium price, quantities, and profits if there is no
The firms in a duopoly produce differentiated products. The inverse demand for Firm 1 is p1 = 52 -q1 - 0.5q2. The inverse demand for Firm 2 is p2 = 40 - q2 - 0.5q1. Each firm has a marginal cost of m = 1. Solve for the Nash-Cournot equilibrium quantities. (Hint: See Solved Problem 14.2.) M
To examine the trade-off between efficiency and market power from a merger, consider a market with two firms that sell identical products. Firm 1 has a constant marginal cost of 1, and Firm 2 has a constant marginal cost of 2. The market demand is Q = 15 - p.a. Solve for the Nash-Cournot
How would the Nash-Cournot equilibrium change in the airline example if United’s marginal cost were$100 and American’s were $200? (Hint: See Solved Problem 14.1.) M
In 2012, Southwest Airlines reported that its “cost per available seat mile” was 13.0¢ compared to 13.8¢ for United Airlines. Assuming that Southwest and United compete on a single route, use a graph to show that their equilibrium quantities differ.(Hint: See Solved Problem 14.1.)
Graph the best-response curve of the second firm in Solved Problem 14.1 if its marginal cost is m and if it is m + x. Add the first firm’s best-response curve and show how the Nash-Cournot equilibrium changes as its marginal cost increases.
A duopoly faces an inverse market demand function of p = 120 - Q. Firm 1 has a constant marginal cost of 20. Firm 2’s constant marginal cost is 40.Calculate the output of each firm, market output, and price if there is (a) a collusive equilibrium or(b) a Nash-Cournot equilibrium. (Hint: See
The viatical settlement industry enables terminally ill consumers, typically HIV patients, to borrow against equity in their existing life insurance contracts to finance their consumption and medical expenses. The introduction and dissemination of effective anti-HIV medication in 1996 reduced AIDS
The application “Deadweight Losses in the Food and Tobacco Industries” shows that the deadweight loss as a fraction of sales varies substantially across industries. One possible explanation is that the number of firms (degree of competition) varies across industries. Using Table 14.2 and other
Consider the Cournot model with n firms.The inverse linear market demand function is p = a - bQ. Each of the n identical firms has the same cost function C(qi) = Aqi + 1 2Bqi 2, where a 7 A. In terms of n, what is each firm’s Nash equilibrium output and profit and the equilibrium price?As n gets
In 2005, the prices for 36 prescription painkillers shot up as much as 15% after Merck yanked its once-popular arthritis drug Vioxx from the market due to fears that it caused heart problems (“Prices Climb as Much as 15% for Some Painkillers,” Los Angeles Times, June 3, 2005, C3). Can this
Connecticut sets a maximum fee that bail-bond businesses can charge for posting a given-size bond (Ayres and Waldfogel, 1994). The bail-bond fee is set at virtually the maximum amount allowed by law in cities with only one active firm (Plainville, 99%; Stamford, 99%; and Wallingford, 99%). The
Your college is considering renting space in the student union to one or two commercial textbook stores.The rent the college can charge per square foot of space depends on the profit (before rent) of the firms and hence on whether there is a monopoly or a duopoly. Which number of stores is better
In a Nash-Cournot equilibrium, each of the n firms faces a constant marginal cost m, the inverse market demand function is p = a - bQ, and the government assesses a specific tax of τ per unit. What is the incidence of this tax on consumers? M
In 2008, cruise ship lines announced they were increasing prices from $7 to $9 per person per day because of increased fuel costs. According to one analyst, fuel costs for Carnival Corporation’s 84-ship fleet jumped $900 million to $2 billion in 2008 and its cost per passenger per day jumped from
According to Robert Guy Matthews, “Fixed Costs Chafe at Steel Mills,” Wall Street Journal, June 10, 2009, stainless steel manufacturers are increasing prices even though the market demand curve had shifted to the left. In a letter to its customers, one of these companies announced that
In the initial Cournot oligopoly equilibrium, both firms have constant marginal costs, m, and no fixed costs, and there is a barrier to entry. Use calculus to show what happens to the best-response function of firms if both firms now face a fixed cost of F. M
What is the duopoly Nash-Cournot equilibrium if the market demand function is Q = 1000 - 1000p and each firm’s marginal cost is 28¢ per unit? M
The European Union fined Sotheby’s auction house more than €20 million for operating (along with rival auction house Christie’s) a price-fixing cartel (see “The Art of Price Fixing” in MyEconLab, Chapter Resources, Chapter 14). The two auction houses were jointly setting the commission
In an industry with inverse demand curve p = 100 - 2Q there are four firms, each of which has a constant marginal cost given by MC = 20. If the firms form a profit-maximizing cartel and agree to operate subject to the constraint that each firm will produce the same output level, how much does each
Which market structure best describes (a) airplane manufacturing, (b) electricians in a small town, (c)farms that grow tomatoes, and (d) cable television in a city? Why?2. Cartels
Derive the mixed strategy equilibrium if both Intel and AMD act simultaneously in the game in the Challenge Solution. What is the expected profit of each firm? (Hint: see Solved Problems 13.1 and 13.2 and the Challenge Solution.) M 1. Market Structures
In the game between Intel and AMD in the Challenge Solution, suppose that each firm earns a profit of 9 if both firms advertise. What is the new subgame perfect Nash equilibrium outcome? Show in a game tree.
A prisoners’ dilemma game is played for a fixed number of periods. The fully rational solution is for each player to defect in each period. However, in experiments with students, players often cooperate for a significant number of periods if the total number of periods is fairly large (such as 10
Draw a game tree that represents the ultimatum game in which the proposer is a first mover who decides how much to offer a responder and the responder then decides to accept or reject the offer. The total amount available is $50 if agreement is reached but both players get nothing if the responder
At the end of performances of his Broadway play“Cyrano de Bergerac,” Kevin Kline, who starred as Cyrano, the cavalier poet with a huge nose, auctioned his prosthetic proboscis, which he and his co-star, Jennifer Garner, autographed (www.nytimes.com/2007/12/09/business/09suits.html)to benefit
Suppose that Anna, Bill, and Cameron are the only people interested in the paintings of the Bucks County artist Walter Emerson Baum. His painting Sellers Mill is being auctioned by a second-price sealed-bid auction. Suppose Anna’s value of the painting is $20,000, Bill’s is $18,500, and
In 2007, Italy announced that an Italian journalist who had been held hostage for 15 days by the Taliban in Afghanistan had been ransomed for five Taliban prisoners. Governments in many nations denounced the act as a bad idea because it rewarded terrorism and encouraged more abductions. Use an
From the ninth century bc until the proliferation of gunpowder in the fifteenth century ad, the ultimate weapon of mass destruction was the catapult(Wilford, John Noble, “How Catapults Married Science, Politics and War,” New York Times, February 24, 2004, D3). Hero of Alexandria pointed out in
Due to learning by doing (Chapter 7), the more that an incumbent firm produces in the first period, the lower its marginal cost in the second period. If a potential entrant expects the incumbent to produce a large quantity in the second period, it does not enter. Draw a game tree to illustrate why
Before entry, the incumbent earns a monopoly profit of πm = $10 (million). If entry occurs, the incumbent and entrant each earn the duopoly profit, πd = $3. Suppose that the incumbent can induce the government to require all firms to install pollution-control devices that cost each firm $4.Show
Suppose that an incumbent can commit to producing a large quantity of output before the potential entrant decides whether to enter. The incumbent chooses whether to commit to produce a small quantity or a large quantity. The rival then decides whether to enter. If the incumbent commits to the small
A monopoly manufacturing plant currently uses many workers to pack its product into boxes. It can replace these workers with an expensive set of robotic arms. Although the robotic arms raise the monopoly’s fixed cost substantially, they lower its marginal cost because it no longer has to hire as
Levi Strauss and Wrangler are planning new generation jeans and must decide on the colors for their products. The possible colors are white, black, and violet. The payoff to each firm depends on the color it chooses and the color chosen by its rival, as the profit matrix shows:a. Given that the
A thug wants the contents of a safe and is threatening the owner, the only person who knows the code, to open the safe. “I will kill you if you don’t open the safe, and let you live if you do.” Should the information holder believe the threat and open the safe? The table shows the value that
In Solved Problem 13.2, suppose that Mimi can move first. What are the equilibria, and why? Now repeat your analysis if Jeff can move first.2.6. Solve for the Stackelberg subgame-perfect Nash equilibrium for the following game tree. What is the joint-profit maximizing outcome? Why is that not the
A small tourist town has two Italian restaurants, Romano’s and Giardino’s. Normally both restaurants prosper with no advertising. Romano’s could take some of Giardino’s customers by running radio ads and Giardino’s could do the same thing. The one-month profit matrix (showing payoffs in
If the airline game in Table 13.1 is repeated, what happens if the players know the game will last five periods? What happens if the game is played indefinitely but one or both firms care only about current profit?
In a repeated game, how does the outcome differ if firms know that the game will be (a) repeated indefinitely, (b) repeated a known, finite number of times, (c) repeated a finite number of times but the firms are unsure as to which period will be the last period?
Two firms are planning to sell 10 or 20 units of their goods and face the following profit matrix:Firm 2 35 50 40 20 60 20 30 30 10 20 Firm 1 10 20 Exercisesa. What is the Nash equilibrium if both firms make their decisions simultaneously?b. How does your analysis change if the government imposes a
Acura and Volvo offer warranties on their automobiles, where wA is the number of years of an Acura warranty and wV is the number of years of a Volvo warranty. The revenue for Firm i, i = A for Acura and V for Volvo, is Ri = 27,000wi/(wA + wV). Its cost of providing the warranty is Ci =
The 100-meter Olympic gold medalist and the 200-meter Olympic gold medalist have agreed to a 150-meter duel. Before the race, each athlete decides whether to improve his performance by taking anabolic steroids. Each athlete’s payoff is 20 from winning the race, 10 from tying, and 0 from
Suppose that you and a friend play a “matching pennies” game in which each of you uncovers a penny. If both pennies show heads or both show tails, you keep both. If one shows heads and the other shows tails, your friend keeps them. Show the payoff matrix. What, if any, is the pure-strategy Nash
In the novel and film The Princess Bride, the villain Vizzini kidnaps the princess. In an attempt to rescue her, the hero, Westley, challenges Vizzini to a battle of wits. Consider this variation on the actual plot. (I do not want to reveal the story.) In the battle, Westley puts two identical
Modify the payoff matrix in the game of chicken in Exercise 1.13 so that the payoff is -2 if neither driver swerves. How does the equilibrium change? M
Two guys (suffering from testosterone poisoning)engage in the game of chicken. They drive toward each other in the middle of a road. As they approach the impact point, each has the option of continuing to drive down the middle of the road or to swerve.Both believe that if only one driver swerves,
Takashi Hashiyama, president of the Japanese electronics firm Maspro Denkoh Corporation, was torn between commissioning Christie’s or Sotheby’s to auction the company’s $20 million art collection, whicha. If both firms move simultaneously, does either firm have a dominant strategy? Explain.b.
In the battle of the sexes game, the husband likes to go to the mountains on vacation, and the wife prefers the ocean, but they both prefer to take their vacations together.Husband–1–1–1 2–1 1 12 Mountains Beach Mountains Beach Wife What are the Nash equilibria? Discuss whether this game
Suppose that Panasonic and Zenith are the only two firms that can produce a new type of 3D TV. The payoff matrix shows the firms’ profits (in millions of dollars):If the firms make their decisions simultaneously, which firms enter? How would your answer change if the U.S. government committed to
Suppose that Toyota and GM are considering entering a new market for electric automobiles and that their profits (in millions of dollars) from entering or staying out of the market are included a van Gogh, a Cézanne, and an early Picasso(Vogel, Carol, “Rock, Paper, Payoff,” New York Times,
What is the mixed-strategy Nash equilibrium for the game in Exercise 1.7? M
Suppose that two firms face the following payoff matrix:Given these payoffs, Firm 2 wants to match Firm 1’s price, but Firm 1 does not want to match Firm 2’s price. What, if any, are the pure-strategy Nash equilibria of this game?
The Wall Street Journal (Lippman, John, “The Producers: ‘The Terminator’ Is Back,” March 8, 2002, A1) reported that Warner Brothers agreed to pay$50 million for its U.S. distribution rights, plus an additional $50 million in marketing costs, so that it could release Terminator 3 (T-3) in
Lori employs Max. She wants him to work hard rather than to loaf. She considers offering him a bonus or not giving him one. All else the same, Max prefers to loaf. The payoff matrix is If they choose actions simultaneously, what are their strategies? (See Solved Problem 13.2.) M
Suppose Procter & Gamble (PG) and Johnson &Johnson (JNJ) are simultaneously considering new advertising campaigns. Each firm may choose a high, medium, or low level of advertising.What are each firm’s best responses to its rival’s strategies?Does either firm have a dominant strategy? What is

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