1. ECO 550 Entire Course
COPY and PASTE this LINK to get the TUTORIAL:
http://homeworkfox.com/tutorials/economics/12429/ec
o-550-entire-course-strayer-university-new-updated-
syllabus/
ECO 550 Entire Course
Strayer University
WEEK 1
Check Your Understanding
Chapter 1: Problems 2, 3, and 6
Chapter 2: Problems 1, 5, and 6
Chapter 1: Exercises 2, 3, and 6
2. Explain several dimensions of the shareholder-principal conflict with manager-agents known
as the principal-agent problem. To mitigate agency problems between senior executives and
shareholders, should the compensation committee of the board devote more to executive salary
and bonus (cash compensation) or more to long-term incentives? Why? What role does each type
of pay play in motivating managers?
3. Corporate profitability declined by 20 percent from 2008 to 2009. What performance
percentage would you use to trigger executive bonuses for that year? Why? What issues would
arise with hiring and retaining the best managers?
6. In the context of the shareholder wealth-maximization model of a firm, what is the expected
impact of each of the following events on the value of the firm? Explain why.
Chapter 2: Exercises 1, 5, and 6
1. For each of the determinants of demand in Equation 2.1, identify an example illustrating the
effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the
same for each of the determinants of supply in Equation 2.2. In each instance, would equilibrium
market price increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf
and Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries.
2. 5. Two investments have the following expected returns (net present values) and standard
deviation of returns:
PROJECT EXPECTED RETURNS STANDARD DEVIATION
A $ 50,000 $ 40,000
B $250,000 $125,000
6. The manager of the aerospace division of General Aeronautics has estimated the price it can
charge for providing satellite launch services to commercial firms. Her most optimistic estimate
(a price not expected to be exceeded more than 10 percent of the time) is $2 million. Her most
pessimistic estimate (a lower price than this one is not expected more than 10 percent of the
time) is $1 million. The expected value estimate is $1.5 million. The price distribution is
believed to be approximately normal.
WEEK 1 Discussion Questions
Managerial Economic Decision Making" Please respond to the following:
From the e-Activity, assess how business leaders use managerial economics to make
business decisions indicating how profits may be impacted.
Analyze the principal-agent problem to determine how the relationship could be less
adversarial. Provide support for your rationale.
Fundamental Economic Concepts" Please respond to the following:
Pick a recently released good or service. Then, determine the factors that must be
evaluated regarding the product’s supply and demand. Analyze how these factors impact
the decision to supply the product indicating the significance of each in the decision-
making process.
Using the same product example above, discuss how the risk-tolerance factors affect
supplying the good or service and how this should influence management’s decisions.
WEEK 2
WEEK 2
Chapter 3: Problems 3, 4, and 7
Chapter 4: Problems 5, 6, and 7
Quiz: Chapters 1 and 2: 20 questions
3. Chapter 3: Problems 3, 4, and 7
3. The Olde Yogurt Factory has reduced the price of its popular Mmmm Sundae from $2.25 to
$1.75. As a result, the firm’s daily sales of these sundaes have increased from 1,500/day to
1,800/day. Compute the arc price elasticity of demand over this price and consumption quantity
range.
4. The subway fare in your town has just been increased from a current level of 50 cents to $1.00
per ride. As a result, the transit authority notes a decline in rider-ship of 30 percent.
a. Compute the price elasticity of demand for subway rides.
b. If the transit authority reduces the fare back to 50 cents, what impact would you expect on the
ridership? Why?
7. In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in
price and an 11 percent increase in advertising. If the price elasticity of demand is −1.5 and the
advertising elasticity of demand is +0.6, would you expect an increase or decrease in total
revenues?
Chapter 4: Problems 5, 6, and 7
5. General Cereals is using a regression model to estimate the demand for Tweetie Sweeties, a
whistle-shaped, sugar-coated breakfast cereal for children. The following (multiplicative
exponential) demand function is being used:
6. The demand for haddock has been estimated as log + b log P + c log I + d log Pm
where of haddock sold in New England per pound of haddock
measure of personal income in the New England region
index of the price of meat and poultry
a. Determine the price elasticity of demand.
b. Determine the income elasticity of demand.
c. Determine the cross price elasticity of demand.
d. How would you characterize the demand for haddock? Apparently the Haddock is plentiful
since it a white fish. New England has lots of ocean access to fish.
e. Suppose disposable income is expected to increase by 5 percent next year.
7. An estimate of the demand function for household furniture produced the following results:
4. 1.08 .16 -.48
Y R P
where expenditures per household
personal income per household
of private residential construction per household
of the furniture price index to the consumer price index
a. Determine the point price and income elasticities for household furniture.
b. What interpretation would you give to the exponent for R? Why do you suppose R was
included in the equation as a variable?
c. If you were a supplier to the furniture manufacturer, would you have preferred to see the
analysis performed in physical sales units rather than dollars of revenue? How would this change
alter the interpretation of the price coefficient, presently estimated as −0.48?
WEEK 2 Discussion Questions
"Demand Analysis" Please respond to the following:
From the e-Activity, if you were a manager in a tobacco company, analyze the elasticity
of demand for tobacco products. Evaluate the factors involved in making decisions about
pricing tobacco products indicating which would be the most influential.
Using the same scenario above, discuss how the elasticity influence the short-term and
long-term decisions of the company and the impact to the decision made related to
profitability.
"Estimating Demand" Please respond to the following:
Provide an example when it would be appropriate to conduct a time-series or cross
sectional data. Discuss the potential problems that may arise with your example and
identify strategies for minimizing the impact of the potential problems.
Discuss the meaning of the regression coefficient of the independent variable(s) and how
it could be used to estimate the elasticities of each of these variables. Discuss how
managers use the elasticities measurements to make managerial decisions.
WEEK 3
WEEK 3
Chapter 5: Problems 1, 5, 6, and 9
5. Chapter 6: Problems 2, 7, 9, and 10
Chapter 5
1. The forecasting staff for the Prizer Corporation has developed a model to predict sales of its
air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable
personal income Y and the population between ages 15 and 40, Z, and inversely with the price of
the snowmoblies P. Based on past data, the best estimate of this relationship is *YZ/P where k
has been estimated (with past data) to equal 100.
a. If Y = $11,000, Z = $1,200, and P = $20,000, what value would you predict for S ?
b. What happens if P is reduced to $17,500?
c. How would you go about developing a value for k?
d. What are the potential weaknesses of his model?
5. A firm experienced the demand shown in the following table.
year ------ actual demand---- 5 yr moving avg --- 3 yr moving avg-- exponential smoothing --
exponential smoothing ( ) --- ( )
______________________________________________________________________________
___________________ 2000 | 800 | xxxx | xxxx | xxxx | xxxxx 2001 | 925 | xxxx | xxxx | _____ |
__________ 2002 | 900 | xxxx | xxxx | ______ | __________ 2003 | 1025 | xxxx | _____ |
________ | ___________ 2004 | 1150 | xxxx | ______ | _________ | ____________ 2005 | 1160 |
_____ | _______ | __________ | _____________ 2006 | 1200 | _______ | _______ | __________
| ____________ 2007 | 1150 | _______ | ________ | ___________ | ____________ 2008 | 1270 |
________ | ________ | ___________ | ____________ 2009 | 1290 | _________ | ________ |
____________ | ___________ 2010 | * | _________ | _________ | ____________ |
____________ Unknown future value to be forecast.
a. Fill in the table by preparing forecasts based on a five- year moving average, a three- year
moving average, and exponential smoothing( with a and a ). Note: The exponential smoothing
forecasts may be begun by assuming Yt+
b. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting
methods based on the RMSE criterion.
c. Which forecast would you have used for 2010? Why?
6. The economic analysis division of Mapco Enterprises has estimated the demand function for
its line of weed trimmers as ,000 + 0.4N - 350Pm + 90Ps where of new homes completed in the
primary market area of the Mapco trimmer of its competitor's Surefire trimmer In 2010, 15,000
new homes are expected to be completed in the primary market area. Mapco plans to charge $50
for its trimmer. The Surefire trimmer is expected to sell for $55.
6. a. What sales are forecast for 2010 under these conditions?
b. If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on
Mapco's sales?
c. What effect would a 30 percent reduction in the number of new homes completed have on
Mapco's sales ( ignore the impact of the price cut of the Surefire trimmer)?
9. Savings-Mart (a chain of discount department stores) sells patio and lawn furniture. Sales are
seasonal, with higher sales during the spring and summer quarters and lower sales during the fall
and winter quarters. The company developed the following quarterly sales forecasting model:
+ 0.125t 2.75D1t + 2.25D2t + 3.50D3t
Where sales ($ million) in quarter t
sales ($ million) when
period (quarter) where the fourth quarter of First quarter of , second quarter of ,. . .
for first-quarter observations 0 otherwise
for second quarter observations 0 otherwise
for third-quarter observations 0 otherwise
Forecast Savings-Mart s sales of patio and lawn furniture for each quarter of 2010.
Chapter 6
2. If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer
such as Cummins Engine Co. of Columbus, Indiana take in advance to reduce the effect of
the exchange rate fluctuation on company profitability?
7. If Boeing aircraft prices in dollars increase 20 percent and the yen/dollar exchange rate
declines 15 percent, what effective price increase is facing Japan Airlines for the purchase of a
Boeing 747? Would Boeing's margin likely rise or fall if the yen then depreciated and competitor
prices were unchanged? Why?
9. If unit labor costs in Spain and Portugal rise, but unit labor costs in Germany decline and
other producer prices remain unchanged, what effect should these factors by themselves have on
export trade and why?
10. What three factors determine whether two economies with separate fiscal and monetary
authorities should form a currency union? Give an illustration of each factor using NAFTA
economies.
7. WEEK 3 Discussion Questions
"Business and Economic Forecasting" Please respond to the following:
From the e-Activity, develop a regression equation using the data you collected from
your research. Use the regression equation to focus the demand for the product you chose
for the next three periods. Assess what the results of the regression equation tells
managers and how it is likely to impact decisions made related to maximizing
profitability.
Imagine you are a manager for the good or service used above. From the results of the
regression equation, suggest strategies to either maintain demand (if an increase over
three periods occurs) or improve demand (if a decrease over three periods occurs).
Provide support for your recommendations.
"Managing in the Global Economy" Please respond to the following:
Evaluate the relationship between the European Euro crisis in 2012 and the American
economy. Assess how this affects American businesses and decisions made by mangers
related to sustainable profitability. Provide examples with your response.
Aside from maximizing profits, assess the factors that managers must consider when
making the decision to outsource or integrate forwards or backwards considering which
factor would be most influential for decision-making.
WEEK 4
WEEK 4
Check Your Understanding
Chapter 7: Problems 1, 6, 8, and 9
Chapter 8: Problems 2(a), 4, and 6(a)
Chapter 7
In the deep creek mining company described in this chapter table 7.1 suppose again that labor is
the variable input and capital is the fixed input. Specifically, assume that the firm owns a piece
of equipment having a 500-bhp rating. A. Complete the
following table
Labor input L(#of workers
Total production TPL (=Q)
8. Marginal Product (MPL)
Average Product APL
1
2
3
4
5
6
7
8
9
10
`
B. Plot the (i) total product, (ii) marginal product, (iii) average product functions.
C. Determine the boundaries of these three stages of production.
6. Consider the following short-Run production function (where input, ):
A. Determine the marginal product
B. Determine the average product function
C. Find the value of L that maximizes Q
D. Find the value of L at which the marginal product function takes on its maximum value
E. Find the value of L at which the average product function takes on its maximum value.
8. Based on the production function parameter estimates reported in Table 7.4:
A. Which industry (or industries) appears to exhibit decreasing returns to scale? (Ignore the issue
of statistical significance.)
B. Which industry comes closest to exhibiting constant returns to scale?
9. C. In which will a given percentage increase in capital result in the largest percentage increase in
output?
D. In what industry will a given percentage increase in production workers result in the largest
percentage increase in output?
9. Consider the following Cobb- Douglas production function for the bus transportation system
in a particular city:
Q= ?L ^?1 F^?2 K^?3
Where L is the labor input in worker hours;
F is the fuel input in gallons;
K is the capital input in number of buses;
Q is the output measured in millions of bus miles
Suppose that the parameters (a,? 1, ?2, ?3) of this model were estimated using annual data for the
past 25 years. The following results were obtained:
?= 0.0012;?; ?; ?
A. Determine the (i) labor, (ii) fuel, and (iii) capital input production elasticities.
B. Suppose that labor input (worker hours) is increased by 2 percent next year (other inputs held
constant). Determine the approximate percentage change in output.
C. Suppose the capital input (number of buses) is decreased by 3 percent next year (when certain
older buses are taken out of service). Assuming that the other inputs are held constant, determine
the approximate percentage change in output.
D. What type of return to scale appears to characterize this bus transportation system? (Ignore
the issue of statistical significance.)
E. Discuss some of the methodological and measurement problems one might encounter in using
time-series data to estimate the parameters of this model.
Chapter 8
2. Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current
market value of $4M. Bowen owes his local bank $3M. Last year Bowen sold $5M worth of
cotton. His variable operating costs were $4.5M; accounting depreciation was $40,000, although
the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a
salary of $50,000, which is not considered part of his variable operating costs. Interest on his
10. bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual
income would be about $30,000. Bowen can invest any funds that would be derived, if the farm
were sold to earn 10% annually.(Ignore taxes)
A. Compare Bowen's accounting profits.
4. From your knowledge of the relationships among the various production functions, complete
the following table:
Q
TC
FC
VC
ATC
AFC
AVC
MC
0
125
10
5
20
10.50
30
110
40
255
50
11. 3
60
3
70
5
80
295
6. The Blair Company has three assembly plants located in California, Georgia and New
Jersey. Currently the company purchases a major subassembly, which becomes part of the final
product, from an outside firm. Blair has decided to manufacture the subassemblies within the
company and must now consider whether to rent one centrally located facility, where all the
subassemblies would be manufactured or to rent three separate facilities, each located near one
of the assembly plants, where each facility would manufacture only the subassemblies needed for
the nearby assembly plant. A single, centrally located facility, with a production capacity of
18,000 units per year, would have fixed costs of $900,000 per year, and variable costs of $250
per unit. Three separate, decentralized facilities, with production capacities of 8,000, 6,000 and
4,000 units per year, would have fixed costs of $475,000, $425,000 and $400,000,
respectively. Variable costs per unit produced in any of these three, decentralized facilities equal
$225 (per unit). The current production rates at the three assembly plants are 6,000, 4,500 and
3,000 units per year, respectively.
A. Assuming that the current production rates are maintained at the three assembly plants, which
alternative should management select?
WEEK 4 Discussion Questions
"Production Economics" Please respond to the following:
From the e-Activity, determine the environmental variable most likely to affect the short-
run production over the next 12 months. Determine what managers can do to prepare for
the possible change in short-run production.
Pick a real or fictitious business. Create a scenario around this business in which a
manager would decide to either stop operations in the short-run or going out of business
in the long-run. Provide a rationale with your response.
12. "Cost Analysis" Please respond to the following:
Pick a good or service. Distinguish between the short-run and the long-run production
and cost function for that good or service. Discuss how price plays a role in short-run and
the long-run decisions and how managers are likely to respond in each case.
Using the same good or service from above. Identify the fixed and variables costs are for
the good or service. Based upon the costs identified, recommend whether to produce or
not produce the good or service. Provide a rationale with your response.
WEEK 5
WEEK 5
Chapter 9: Problems 3, 4, and 5
Chapter 10: Problems 2, 6, and 10
Midterm Exam: Chapters 1 through 8: 32 questions
Chapter 9
3. A study of the costs of electricity generation for a sample of 56 British firms in 1946-1947
yielded the following long-run cost function:
+ .003Q + .0000029Q^2 - .000046QZ - .026Z + .00018Z^2
where variable cost measured in pence per kilowatt-hour. (A pence was a British monetary unit
equal, at that time to 2 cents U.S.)
measured in millions of kWh per year
size, measured in thousands of kilowatts
A. Determine the long-run variable cost function for electricity generation.
B. Determine the long-run marginal cost function for electricity generation.
C. Holding plant size constant at 150,000 kilowatts, determine the short-run average variable
cost and marginal cost functions for electricity generation.
13. D. For a plant size equal to 150,000 kilowatts, determine the output level that minimizes short-
run average variable costs.
E. Determine the short-run average variable cost and marginal cost at the output level obtained in
Part (D).
4. Assuming that all other factors remain unchanged, determine how a firm’s breakeven point is
affected by each of the following:
A. The firm finds it necessary to reduce the price per unit because of competitive conditions in
the market.
B. The firm’s direct labor costs increase as a result of a new labor contract.
C. The Occupational Safety and Health Administration requires the firm to install new
ventilating equipment in its plant. (Assume that this action has no effect on worker product
5. Cool-Aire Corporation manufactures a line of room air conditioners. Its break even sales level
is 33,000 units. Sales are approximately normally distributed. Expected sales next year are
40,000 units with a standard deviation of 4,000 units.
A. Determine the probability that Cool-Aire will incur an operating loss.
B. Determine the probability that Cool-Aire will operate above its break-even point.
Chapter 10
2. Television channel operating profits vary from high as 45 to 55 percent at MTV and
Nickelodon down to 12 to 18 percent to NBC and ABC. Provide a Porter Five Forces analysis of
each type of network. Why is MTV so profitable relative to major networks?
6. Assume that a firm is a perfectly competitive industry has the following total cost schedule
Outputs (units)
Total Cost ($)
10
$110
15
$150
20
14. $180
25
$225
30
$300
35
$385
40
$480
A. Calculate a marginal cost and an average cost schedule for the firm.
B. If the prevailing marketing price is $17 per unit, how many units will be produced and sold?
What are the profits per unit? What are the total profits?
C. Is the industry in long-run equilibrium at this price?
10. Which of the following products and services are likely to encounter adverse selection
problems: golf shirts at traveling pro tournaments, certified gemstones from Tiffany’s graduation
gift travel packages, or mail-order auto parts? Why or why not?
WEEK 5 Discussion Questions
"Monopolies" Please respond to the following:
From the first e-Activity, imagine this company acting as a monopoly was to have a new
competitor arrive in the marketplace. Assess how the monopoly would likely change its
pricing strategy to compensate for the new competition.
From the first e-Activity, speculate how the monopolist could be more efficient in the
long-run considering new competition has entered the marketplace.
"Oligopoly" Please respond to the following:
From the second e-Activity, assess the marketing and pricing strategies, for example
rebates, to determine the goal(s) of the marketing and pricing strategies for one of the
15. companies you researched. Make one recommendation for changes that the company
should make to better maximize profits.
The Internet has made shopping for airline tickets efficient for the consumer. As a result,
the industry overall is price sensitive. Suggest how the airlines can maximize profits
while avoiding price wars.
WEEK 6
WEEK 6
Check Your Understanding
Chapter 11: Problems 2(a, b), 4(a, c), and 6
Chapter 12: Problems 1, 2(b), and 5(b)
Chapter 11
2. Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one
large firm Tile King. Ajax produces a multi-headed tunnel wall scrubber that is similar to a
model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the
possibility of a price war. The price charged by Tile King is $20,000.
Ajax has the following short-run cost curve:
,000 - 5,000Q + 100Q2.
A. Computer the marginal cost curve for Ajax.
B. Given Ajax’s pricing strategy, what is the marginal revenue function for Ajax?
4. Unique Creations holds a monopoly position in the production and sale of manometers. The
cost function facing Unique is estimated to be
TC = $100,000 + 20Q
A. What is the marginal cost for Unique?
C. What is the marginal revenue at the price computed in Part (b)?
6. Wyandotte Chemical Company sells various chemicals to the automobile industry. Wyandotte
currently sells 30,000 gallons of polyol per year at an average price of $15 per gallon. Fixed
costs of manufacturing polyol are $90,000 per year and total variable costs equal $180,000. The
operations research department has estimated that a 15 percent increase in output would not
affect fixed costs but would reduce average variable costs by 60 cents per gallon. The marketing
department has estimated the arc elasticity of demand for polyol to be –2.0.
16. A. How much would Wyandotte have to reduce the price of polyol to achieve a 15 percent
increase in the quantity sold?
B. Evaluate the impact of such price cut on (i) total revenue, (ii) total costs, and (iii) total profits.
Chapter 12
1. Assume that two companies (C and D) are duopolists that produce identical products.
Demand for the products is given by the following linear demand function:
– Qc- Qd
Where Qc and Qd are the quantities sold by the respective firms and P is the selling price. Total
cost functions for the two companies are
,000 + 100Qc
,000 + 125Qd.
Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the
other firm Â’s output will not change).
A. Determine the long-run equilibrium output and selling price for each firm.
B. Determine the total profits for each firm at the equilibrium output found in Part (a). This is
answer for part (a).
2. Assume that two companies (A and B) are duopolists who produce identical products.
Demand for the products is given by the following linear demand function:
– Qa - Qb
Where Qa and Qb are the quantities sold by the respective firms and P is the selling price. Total
cost functions for the two companies are:
,500 + 55Qa + Q^2a
,200 + 20Qb + 2Q^2b .
Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the
other firm Â’s output will not change).
B. Determine Firm A, Firm B, and total industry profits at equilibrium solution found in Part (a).
5. Alchem (L) is the price leader in the polyglue market. All 10 other manufacturers (follower
[F] firms) sell polyglue at the same price as Alchem. Alchem allows the other firms to sell as
17. much as they wish at the established price and supplies the remainder of the demand itself. Total
demand for polyglue is given by the following function ( +QF):
,000 – 4 QT
Alchem marginal cost function for the manufacturing and selling polyglue is
,000 + 5QL
The aggregate marginal cost function for the other manufacturers of polyglue is
?,000 + 4QF
B. What is the total market demand for polyglue at the price established by Alchem in Part (a)?
How much of total demand do the follower firms supply?
WEEK 6 Discussion Questions
"Game Theory" Please respond to the following:
Demand for airline tickets fluctuates throughout the year, which affects the price of an
airline ticket. Suggest the type of game that may be most appropriate for a specific airline
to play to address the differences in demand and elasticity and the resulting impact on
profitability. Provide support for your reply.
From the first e-Activity, propose a short-term and long-term pricing strategy for the
product or service you researched including how the strategies would be implemented.
Assess how your proposal ultimately maximizes profits.
"Pricing Techniques" Please respond to the following:
From the second e-Activity, propose the new target market segment for the product and
its accompanying pricing strategy (for example, bundling and couponing). Provide a
rational for why you feel the new target market and pricing strategy would be successful
and the likely impact to the profitability of the firm.
The pharmaceutical industry often has the luxury of implementing pricing strategies that
appear high to consumers. Take a position on the fairness of the industry’s approach to
pricing pharmaceutical products including offering an alternative strategy that may be
more palatable to consumers. Provide a rationale with your position.
WEEK 7
WEEK 7
Chapter 13: Problems 2, 13, and 15
18. Chapter 14: Problems 3(b, c, d), 5(a, b, c), and 8(a, b, c)
Chapter 13: Problems 2, 13, and 15
2. Consider the following payoff matrix:
a. Does Player A have a dominant strategy? Explain why or why not.
b. Does Player B have a dominant strategy? Explain why or why not.
13. Analyze the following sequential game and advise Kodak about whether they should
introduce the new product, Picture CD.
15.A math graduate student explains to her friend how to approach a group of
smartattractive guys who have brought along famous actor Russell Crowe. What
shouldherfriend do? Ignore Russell Crowe or fixate on Russell Crowe? Explain the
equilibrium reasoning underlying your answer. (Note: Best payoff—date with R.C.,
Better—date with other guys, Worse—no date tonight, Worst—nodate ever with any of
these guys.)
Chapter 14: Problems 3(b, c, d), 5(a, b, c), and 8(a, b, c)
3. American Export-Import Shipping Company operates a general cargo carrier service between
New York and several Western European ports. It hauls two majorcategories of freight:
manufactured items and semi manufactured raw materials.
b. . What are the profit-maximizing levels of price and output for the twofreight categories?
c. At these levels of output, calculate the marginal revenue in each market.
5. Phillips Industries manufactures a certain product that can be sold directly to retail outlets or
to the Superior Company for further processing and eventual sale asa completely different
product. The demand function for each of these markets is
Retail Outlets: P1 = 60 − 2 Q1
Superior Company: P2 = 40 − Q2
whereP1 and P2 are the prices charged and Q1 and Q2 are the quantities sold inthe respective
markets.
Phillips’ total cost function for the manufacture of thisproduct + 8(Q1 + Q2)5.
a. Determine Phillips’ total profit function.
b. What are the profit-maximizing price and output levels for the product inthe two markets?
c. At these levels of output, calculate the marginal revenue in each market.
19. 8. The Pear Computer Company just developed a totally revolutionary new personal
computer. It estimates that it will take competitors at least two years to produce equivalent
products. The demand function for the computer is estimated to be ,500 − 0.0005Q
The marginal (and average variable) cost of producing the computer is $900.
a. Compute the profit-maximizing price and output levels assuming Pear acts as a
monopolist for its product.
c. Calculate the contribution to profit and overhead for each of the 10 time periods and
prices.
WEEK 7 Discussion Questions
"Game Theory" Please respond to the following:
Demand for airline tickets fluctuates throughout the year, which affects the price of an
airline ticket. Suggest the type of game that may be most appropriate for a specific airline
to play to address the differences in demand and elasticity and the resulting impact on
profitability. Provide support for your reply.
From the first e-Activity, propose a short-term and long-term pricing strategy for the
product or service you researched including how the strategies would be implemented.
Assess how your proposal ultimately maximizes profits.
"Pricing Techniques" Please respond to the following:
From the second e-Activity, propose the new target market segment for the product and
its accompanying pricing strategy (for example, bundling and couponing). Provide a
rational for why you feel the new target market and pricing strategy would be successful
and the likely impact to the profitability of the firm.
The pharmaceutical industry often has the luxury of implementing pricing strategies that
appear high to consumers. Take a position on the fairness of the industry’s approach to
pricing pharmaceutical products including offering an alternative strategy that may be
more palatable to consumers. Provide a rationale with your position.
WEEK 8
Week 8
Chapter 15: Problems 2, 5, and 6
Chapter 15: Problems 2, 5, and 6
20. 2. If contract promises were not excused because of acts of war, would the clearing and
settlements clients of Bank of New York change their behavior? If so,how?What reliance
behavior would be considered efficient? What reliance behavior would be considered excessive?
5. Would warehouse operators insist on owning their own trucking companies?
Why or why not? What coordination and control problems and contractual hazards would these
companies encounter?
6. What organizational form would warehouse operators and truck hauling companies adopt?
WEEK 8 Discussion Questions
"Contracting" Please respond to the following:
From the e-Activity, propose a methodology for assessing the risk in business contracts.
Assess the economic impact this methodology may have for the organization.
Analyze a situation in which both parties entering into a contract could benefit,
economically or otherwise, from slightly ambiguous language contained in the contract.
Provide specific examples to support your response.
"Organization Form" Please respond to the following:
Analyze the potential downfalls of any team effort and make at least one
recommendation for minimizing risk. Provide specific examples to support your
response.
Evaluate the organization form that would be most efficient in minimizing the principal-
agent problem. Provide a rationale with your response.
WEEK 9
Week 9
Chapter 16: Problems 4, 6(a, c), 9
Chapter 16: Problems 4, 6(a, c), 9
4. What are the incentives to innovate for a monopoly firm’s as compared with a firm in a
competitive market if patent protection is not available.
6. The industry demand function for bulk plastics is represented by the following equation:
Where Q represents millions of pounds of plastics
The total cost function for the industry, exclusive of a required return on invested capital, is
22. "Antitrust and Licensing" Please respond to the following:
Imagine how managerial decisions may be easier or more difficult if there were no
antitrust
restrictions in the U.S. Provide an example to support your response.
The IT industry is full of patents. There are some companies, referred to as patent trolls,
whom
purchase these patents in hopes of making money by enforcing patents against alleged
infringers. Determine the impact of government regulation against patent trolls. Identify
who wins and who loses if regulation was adopted.
WEEK 10
Week 10
Chapter 17: Problems 1, 5, and 9(c)
1 . A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash
inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The
firm uses the straight-line depreciation method with a zero salvage value and has a (marginal)
income tax rate of 40 percent. The firm’s cost of capital is 12 percent.
a. Compute the internal rate of return and the net present value.
b. Should the firm accept or reject the project?
5. The Charlotte Bobcats, a professional basketball team, has been offered the opportunity to
purchase the contract of an aging superstar basketball player from another team. The general
manager of the Bobcats wants to analyze the offer as a capital budgeting problem. The Bobcats
would have to pay the other team $800,000 to obtain the superstar. Being somewhat old, the
basketball player is expected to be able to play for only four more years. The general manager
figuresthat attendance, and hence revenues, would increase substantially if the Bobcats obtained
the superstar. He estimates that incremental returns (additional ticket revenues less the
superstar’s salary) would be as follows over the four-year period:
9. The state of Glottamora has $100 million remaining in its budget for the current year. One
alternative is to give Glottamorans a one-time tax rebate. Alternatively, two proposals have been
made for state expenditures of these funds.
WEEK 10 Discussion Questions
"Capital Investments" Please respond to the following:
23. With the current U.S. economy in a weakened state, many companies are reluctant to
implement any capital improvements or capital expenditures in fear of the economic
uncertainty that exists that may negatively impact the cashflow of the organization.
Assess the impact of this behavior on productivity, cost efficiency, diversification of
assets, or impact to future cashflows that may emerge if companies continue this mindset
indicating the long-term risk to profitability. Provide an example or scenario to support
your response.
Analyze the challenges that companies face in entering global markets. Identify the
potential impact to capital budgets in making the decision to move into a global market.
"Cost-Benefit Analysis" Please respond to the following:
Provide a cost-benefit analysis for a company which has to decide whether to hire more
staff or hire temporary workers to meet production.schedules. Determine how managers
would use your cost-benefit analysis to make this decision.
Conduct a cost-benefit analysis of obtaining a graduate degree. Assess both the short-
term and the
long-term costs and benefits to determine why some people obtain the extra education
while others do not.
