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Questions and Answers of Economics

The Pilot Pen Company has decided to use 15 test markets to examine the sensitivity of demand for its new product to various prices, as shown in the following table. Advertising effort was identical
In a study of housing demand, the county assessor is interested in developing a regression model to estimate the market value (i.e., selling price) of residential property within his jurisdiction.
Cascade Pharmaceuticals Company developed the following regression model, using time-series data from the past 33 quarters, for one of its nonprescription cold remedies:Y = −1.04 + 0.24X1 −
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)
The demand for haddock has been estimated aslog Q = a + b log P + c log I + d log PmWhere Q = quantity of haddock sold in New EnglandP = price per pound of haddockI = a measure of personal income in
An estimate of the demand function for household furniture produced the following results:F = 0.0036Y1.08 R0.16 P−0.48 r2 = 0.996Where F = furniture expenditures per householdY = disposable
Consider again the Sherwin-Williams Company example (see Table). Suppose one is interested in developing a multiple regression model with paint sales (Y) as the dependent variable and promotional
The county assessor feels that the use of more independent variables in the regression equation might improve the overall explanatory power of the model. In addition to size, the assessor feels that
1. Estimate the demand for soft drinks using a multiple regression program available on your computer.2. Interpret the coefficients and calculate the price elasticity of soft drink demand.3. Omit
Suppose an appliance manufacturer is doing a regression analysis, using quarterly time-series data, of the factors affecting its sales of appliances. A regression equation was estimated between
A product manager has been reviewing selling expenses (that is, advertising, sales commissions, and so on) associated with marketing a line of household cleaning products. The manager suspects that
a. Using the data in Table for the Sherwin-Williams Company, estimate a multiplicative exponential demand model (see Equation) for paint sales.Q = Î±AÎ²1 PÎ²2MÎ²3b. Compare the results in
The following table presents data on sales (S), advertising (A), and price (P):a. Estimate the following demand models:(i) S = Î± + Î²1A + Î²2P(ii) S = Î±AÎ²1PÎ²2b. Determine whether the
The county assessor is concerned about possible multicollinearity between the size (X1) and total number of rooms (X2) variables. Calculate the correlation coefficient between these two variables and
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
a. Fred’s Hardware and Hobby House expects its sales to increase at a constant rate of 8 percent per year over the next three years. Current sales are $100,000. Forecast sales for each of the next
Metropolitan Hospital has estimated its average monthly bed needs asN = 1,000 + 9Xwhere X = time period (months); January 2002 = 0N = monthly bed needsAssume that no new hospital additions are
Stowe Automotive is considering an offer from Indula to build a plant making automotive parts for use in that country. In preparation for a final decision, Stowe’s economists have been hard at work
A firm experienced the demand shown in the following table.a. Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing
The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers asQD = 18,000 + 0.4N − 350PM + 90PSwhereN = number of new homes completed in the
The Questor Corporation has experienced the following sales pattern over a 10-year period:YEAR SALES ($000)1997 .......... 1211998 .......... 1301999 .......... 1452000 .......... 1602001
Bell Greenhouses has estimated its monthly demand for potting soil to be the following:N = 400 + 4XWhere N = monthly demand for bags of potting soilX = time periods in months (March 2006 = 0)Assume
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
Use the monthly series on the Consumer Price Index (all items) from the previous two years to produce a forecast of the CPI for each of the next three years. Is the precision of your forecast greater
1. Plot the raw data on arrivals for each transportation mode against time, all on the same graph. Which mode is growing the fastest? Which the slowest?2. Plot the logarithm of arrivals for each
One of the most important variables that must be forecasted accurately to project the cost of single-family home construction is the price of Southern pine framing lumber. Use the following data to
If the U.S dollar depreciates 20 percent, how does this affect the export and domestic sales of a U.S. manufacturer? Explain.
If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer like Cummins Engine Co. of Columbus, Indiana, take in advance to reduce the effect of the exchange rate
After an unanticipated dollar appreciation has occurred, what would you recommend a company like Cummins Engine do with its strong domestic currency?
What is the difference between transaction demand, speculative demand, and autonomous transactions by central banks, the World Bank, and the IMF in the foreign exchange markets? Which of these
Would increased cost inflation in the United States relative to its major trading partners likely increase or decrease the value of the U.S. dollar? Why?
If the domestic prices for traded goods rose 50 percent over 10 years in Japan and 100 percent over those same 10 years in the United States, what would happen to the yen/dollar exchange rate? Why?
If Boeing’s dollar aircraft prices increase 20 percent and the yen/dollar exchange rate declines 15 percent, what effective price increase is facing Japan Air Lines for the purchase of a Boeing
Unit labor costs in Germany approach $30 per hour, whereas in Britain unit labor costs are only $17 per hour. Why would such a large difference persist between two members of the EU free trade area?
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.
If core price inflation has grown at a compound growth rate of 2 percent per annum in the United States and 0.04 percent in Japan for the past eight years, what exchange rate represents PPP today if
Analyze the data on inflation rates, interest rates, and growth rate forecasts in Table to determine what the likely near-term trend movement of the U.S. dollar will be. Analyze how each of the
In the Deep Creek Mining Company example described in this chapter Table, suppose again that labor is the variable input and capital is the fixed input. Specifically, assume that the firm owns a
From your knowledge of the relationships among the various production functions, complete the followingtable:
The amount of fish caught per week on a trawler is a function of the crew size assigned to operate the boat. Based on past data, the following production schedule was developed:CREW SIZE
Suppose the owner of the trawler can sell all the fish caught for $75 per 100 pounds and can hire as many crew members as desired by paying them $150 per week. Assuming that the owner of the trawler
Consider the following short-run production function (where L = variable input,Q = output):Q = 6L3 − 0.4L3a. Determine the marginal product function (MPL).b. Determine the average product function
Consider the following short-run production function (where L = variable input, Q = output):Q = 10L − 0.5L2Suppose that output can be sold for $10 per unit. Also assume that the firm can obtain as
Suppose that a firm€™s production function is given by the following relationship:Where Q = outputL = labor inputK = capital inputa. Determine the percentage increase in output if labor
Consider the following Cobb-Douglas production function for the bus transportation system in a particular city:Q = αLβ1Fβ2Kβ3Where L = labor input in worker hoursF = fuel input in gallonsK =
Extension of the Cobb-Douglas Production Function—The Cobb-Douglas production function can be shown to be a special case of a larger class of linear homogeneous production functions having the
Lobo Lighting Corporation currently employs 100 unskilled laborers, 80 factory technicians, 30 skilled machinists, and 40 skilled electricians. Lobo feels that the marginal product of the last
1. Estimate the Cobb-Douglas production function Q = Î±LÎ²1KÎ²2 where Q = output; L = labor input; K = capital input; and Î±, Î²1, and Î²2 are the parameters to be estimated.2. Test
The output (Q) of a production process is a function of two inputs (L and K) and is given by the following relationship:Q = 0.50LK − 0.10L2 − 0.05K2The per-unit prices of inputs L and K are $20
Using Figure contrast the annual rate of oil extraction of the United States and of Saudi Arabia in 2002 and 2008. Explain why one country€™s output increased by 33 percent and the others
With interest rates at historic lows in the United States, what is the effect on the optimal rate of extraction for a Texas oilfield owner? Explain the intuition that supports your answer.
Explain the concept of maximum sustainable yield for a fishery. Is maximum sustainable yield required to preserve biodiversity? Is it the most efficient rate of harvest for a renewable natural
US Airways owns a piece of land near the Pittsburgh International Airport. The land originally cost US Airways $375,000. The airline is considering building a new training center on this land. US
Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $4 million. Bowen owes his local bank $3 million. Last year Bowen sold $5 million worth of
Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She
From your knowledge of the relationships among the various cost functions, complete the followingtable.
A manufacturing plant has a potential production capacity of 1,000 units per month (capacity can be increased by 10 percent if subcontractors are employed). The plant is normally operated at about 80
The Blair Company’s three assembly plants are located in California, Georgia, and New Jersey. Previously, the company purchased a major subassembly, which becomes part of the final product, from an
Kitchen Helper Company decides to produce and sell food blenders and is considering three different types of production facilities (â€œplantsâ€). Plant A is a labor-intensive facility,
The ARA Railroad owns a piece of land along one of its right-of-ways. The land originally cost ARA $100,000. ARA is considering building a new maintenance facility on this land. ARA determined that
The Emerson Corporation, a manufacturer of airplane landing gear equipment, is trying to develop a learning curve model to help forecast labor costs for successive units of one of its products. From
1. Calculate the incremental, or marginal, cost per chair to LP of accepting the order from Southeast.2. What assumptions did you make in calculating the incremental cost in Question 1? What
Determine how many units of labor (L*) and capital (K*) are required to produce five units of output (Q0) for the production function given in thea. Constant returns example.b. Decreasing returns
Recompute your answers to Exercise 1, assuming that the per-unit cost of labor increases from CL = $2 to C’L = $4. How has the increase in the labor rate affected the optimal proportions of labor
Use the data in Table and a multiple regression analysis program on your computer to estimate a Cobb-Douglas production function of the form shown in Equation 8A.1. Do you observe increasing,
A study of 86 savings and loan associations in six northwestern states yielded the following cost function:Where C = average operating expense ratio, expressed as a percentage and defined as total
Referring to Exercise 1:A study of 86 savings and loan associations in six northwestern states yielded the following cost function:Where C = average operating expense ratio, expressed as a percentage
A study of the costs of electricity generation for a sample of 56 British firms in1946–1947 yielded the following long-run cost function:AVC = 1.24 + .0033Q + .0000029Q2 − .000046QZ − .026Z +
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
Cool-Aire Corporation manufactures a line of room air conditioners. Its breakeven sales level is 33,000 units. Sales are approximately normally distributed.Expected sales next year are 40,000 units
McKee Corporation has annual fixed costs of $12 million. Its variable cost ratio is .60.a. Determine the company’s break-even dollar sales volume.b. Determine the dollar sales volume required to
1. Plot the data in columns B and C in an output (enrollment-) cost graph and sketch a smooth curve that would appear to provide a good fit to the data.2. Based on the scatter diagram in Question 1,
1. What are the variable costs for the decision to send one more person aboard a charter flight that is already 80 percent booked?2. In making an entry/exit decision, if competitive pressure is
The profitability of the leading cola syrup manufacturers PepsiCo and Coca-Cola and of the bottlers in the cola business is very different. PepsiCo and Coca-Cola enjoy an 81 percent operating profit
Television channel operating profits vary from as high as 45 to 55 percent at MTV and Nickelodeon down to 12 to 18 percent at NBC and ABC. Provide a Porter Five Forces analysis of each type of
Ethanol is again viewed as one part of a solution to the problem of shortages of petroleum products. Ethanol is made from a blend of gasoline and alcohol derived from corn or sugar cane. What would
Why invest capital in purely competitive industries with equilibrium margins that are razor thin and entrants that erode quasi profits? Suppose volume is not exceptionally large, why then?
Assume that a firm in a perfectly competitive industry has the following total cost schedule:OUTPUT (UNITS) TOTAL COST ($)10 ............. $11015 .............. 15020 .............. 18025
Royersford Knitting Mills, Ltd., sells a line of women’s knit underwear. The firm now sells about 20,000 pairs a year at an average price of $10 each. Fixed costs amount to $60,000, and total
The Poster Bed Company believes that its industry can best be classified as monopolistically competitive. An analysis of the demand for its canopy bed has resulted in the following estimated demand
Jordan Enterprises has estimated the contribution margin (P – MC)/P for its Air Express model of basketball shoes to be 40 percent. Based on market research and past experience, Jordan estimates
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
If notorious firm behavior (i.e., defrauding a buyer of high-priced experience goods by delivering low quality) becomes known throughout the marketplace only with a lag of three periods, profits on
1. Does easy access to distribution channels at grocery stores for Redbox’s 22,000 vending machines indicate high or low entry threat in the movie rental business? Why? Why might McDonald’s be an
1. How would the Internet firms Napster, Kazaa, and Apple’s iTunes Music Store be reflected in a Porter Five Forces industry analysis?2. Why was the Internet a disruptive technology for Sony
Information Resources, Inc. (IRI), collects data on consumer packaged goods at 32,000 scanner checkout counters and in panel surveys of 70,000 households. IRI records indicate that department
Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firm—Tile King. Ajax produces a multiheaded tunnel wall scrubber that is similar to a model produced by
The Lumins Lamp Company, a producer of old-style oil lamps, estimated the following demand function for its product:Q = 120,000 − 10,000PWhere Q is the quantity demanded per year and P is the price
Unique Creations holds a monopoly position in the production and sale of magnometers. The cost function facing Unique is estimated to beTC = $100,000 + 20Qa. What is the marginal cost for Unique?b.
Exotic Metals, Inc., a leading manufacturer of beryllium, which is used in many electronic products, estimates the following demand schedule for its product:PRICEQUANTITY($/POUND) (POUNDS/PERIOD)$25
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
Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models:The company is
The Public Service Company of the Southwest is regulated by an elected state utility commission. The firm has total assets of $500,000. The demand function for its services has been estimated asP =
The Odessa Independent Phone Company (OIPC) is currently engaged in a rate case that will set rates for its Midland-Odessa area customer base. OIPC has total assets of $20 million. The Texas Public
1. Is the monopoly on patented pharmaceuticals warranted? What barrier to entry prevents the re-importation into the United States of pharmaceuticals sold at lower prices abroad (say, in Canada)?2.
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:P = 600 −QC −QDWhere QC and QD are the
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:P = 200 −QA −QBWhere QA and QB are the
Consider exercise 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:P = 200 −QA
Compare the optimal solutions obtained in Exercises 2 and 3. Specifically:a. How much higher (lower) is the optimal selling price when the two firms form a cartel to maximize industry profits,
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 much as they

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