Questions and Answers of Business Economics And Managerial

How does vertical integration reduce costs?
Explain and evaluate the saving of production costs argument for vertical integration.
What do you understand by the term ‘‘vertical integration’’?
Identify a company and examine its growth record over the past 10 years. Try to identify factors that explain periods of fast and slow growth.
What are the main characteristics of the resource-based view of the ¢rm?
What are the factors that limit the growth aspirations of a ¢rm?
Explain Penrose’s managerial constraint and explain why it limits the growth of the¢rm.
What factors encourage an endogenous growth process within a ¢rm?
Explain how a ¢rm ¢nds the optimal combination of growth and pro¢ts.
How does Marris reconcile the con£icting interests of managers and shareholders?
Explain Baumol’s sales maximization model of growth.
What are the characteristics of knowledge and team production that make the market an inadequate governance structure?
Can a ‘‘clear blue line’’ be drawn between the ¢rm and the market, as argued by Coase?
In the analysis of incomplete contracts what advantages does ownership have over a market contract?
Many ¢rms contract out services and o¡er their suppliers long-term contracts.What factors would encourage the ¢rm to acquire its supplier?
Explain the concepts of adverse selection and moral hazard.
What is the importance of asset speci¢city in encouraging the avoidance of the market?
Explain the concepts of bounded rationality and asymmetric information and their role in determining the boundary between the market and the ¢rm.
What do you understand by the term ‘‘management or ¢rm transaction costs’’?
What do you understand to be the transaction costs of using the market?
Identify some individuals you consider to be entrepreneurs. How does each one exhibit the characteristics of entrepreneurship identi¢ed by economics.
What are the main push and pull factors encouraging individuals to start up their own ¢rm?
What di⁄culties face an individual in starting a new ¢rm?
Compare Shackle’s notion of imagination with that of Casson’s judgemental decision.
Which of the following activities might be described as entrepreneurial and give your reasons?:^ Introducing a new product that meets previously unful¢lled demand (e.g., the¢rst electronic
Distinguish between management and the entrepreneurial functions within a ¢rm.
What do you consider are the main functions of entrepreneurship?
Using the following data for project A and B:^ Calculate the net present value for each project, assuming a cost of capital of 15%.^ Calculate the internal rate of return for each project.^ Which
Evaluate the various approaches to dealing with the problem of uncertainty in appraising investment proposals.
Explain the CAPM approach to measuring the cost of capital.
How should a ¢rm measure its marginal cost of capital?
Given the uncertainty in predicting future cash £ows, why should a ¢rm adopt anything other than a simplistic appraisal rule?
If the ¢rm has access to unlimited funds at a given cost of capital, how should it rank projects using payback and net cash £ow? If the ¢rm faces a situation of capital rationing, how would the
Why should discounted cash £ow methods be used in preference to more traditional methods, such as payback and the accounting rate of return?
What is the payback method of investment appraisal? How might the payback period be determined? What are its main shortcomings in appraising investment expenditure? Why is the payback method
Explain the concepts of net present value and the internal rate of return of a series of net cash £ows. Demonstrate their calculation. Which technique should be the preferred methodology for
Explain the notion of the ‘‘time value’’ of money. Why does it lead to the discounting of future cash £ows?
Is it possible to distinguish between the informative and persuasive elements of advertisements? Do they help customers overcome information de¢ciencies?
For what types of products should advertising be banned?
Why should the advertising of cigarettes be banned?
Discuss the view that all advertising is informative in nature.
What is the role of branding in helping the ¢rm to sell its products?
Why do ¢rms advertise?
A ¢rm estimates its sales advertising function as follows:Calculate the impact on the quantity sold of increasing the advertising spend from 100 to 200 and 400. Q=20,000+ 600A - 0.6A
The advertising-to-sales ratio for product X is 20% and for product Y is 1%. How might these di¡erences be explained? What does this tell us about the nature of the two products?
Compare and contrast the relative advantages of price and non-price competition.
Using diagrams explain the derivation of the LAAC and LAR curves and explain the relationship between sales and advertising. Where will the equilibrium level of advertising be?
What are the Dorfman^Steiner conditions for optimal advertising? If the advertising-to-sales ratio is currently 1/10, the elasticity of advertising 0.2 and price elasticity 2:0, what are the
The ¢rm’s initial demand curve is P ¼ 25 Q, ¢xed costs are 20 and marginal costs per unit are 5. Calculate the pro¢t-maximizing-price, output and point elasticity of demand and the pro¢ts of
Read a copy of a local newspaper and look closely at the advertising:^ Classify the advertisements according to whether they are informative or persuasive or a mixture of both.^ Classify the products
How would a ¢rm recognize that it has set its price at too high a level compared with its competitors?
In what circumstances will a ¢rm adopt cost-plus pricing?
What does the empirical evidence tell us about how ¢rms determine prices? Do more recent studies (e.g., Hall et al., 1997) indicate a greater in£uence of demand factors and competitor behaviour in
Can cost-plus pricing be reconciled with pro¢t-maximizing pricing?
Explain the term mark-up pricing. What factors might determine the mark-up?
Explain the concept of full cost pricing. Why do ¢rms adopt such a method of determining prices?
Suppose a ¢rm can identify two separate markets for its product, with demand curves P1 ¼ 60 0:5Q1 and P2 ¼ 110 3Q2 and a marginal cost of MC ¼ 9 þ 0:2Q, where Q ¼ Q1 þ Q2:^ What quantity
Explain the concept of consumer surplus. In what ways might ¢rms expropriate consumer surplus by charging di¡erent prices to di¡erent buyers?
Explain the terms ‘‘¢rst, second and third-degree price discrimination’’. Give examples of the use of such practices.
Observe the pricing of petrol on your route to college:^ What pricing patterns emerge?^ Do they all charge the same price?^ If the price of petrol increases, do all the stations move their price
Visit the websites of a number of airlines, choose a £ight and obtain a price for:^ Flights at di¡erent times of the day.^ Flights on di¡erent days of the week.^ Flights one week, one month and
Why do duopoly markets not result in prices being set at competitive lewels.
What do you understand by the term ‘‘price stickiness’’? Why are prices sticky in oligopolistic industries?
What factors facilitate the formation of cartels and, once formed, what factors make them unstable?
Consider the usefulness of the ‘‘prisoner’s dilemma’’ model in explaining the dilemma of ¢rms trying to decide whether they should collude or act independently.
Explain the following terms: Nash equilibrium, dominated strategy, zero sum game and positive sum game.
Using reaction curves and isopro¢t curves, explain the incentive for ¢rms in a duopoly to move from a Cournot equilibrium position.
Explain how reaction curves and isopro¢t curves are derived in the Cournot oligopoly. Using diagrams show and explain how equilibrium is reached?
Compare and contrast the assumptions a ¢rm makes about the behaviour of its rivals in the kinked demand, Bertrand and Cournot models.
What assumption does the kinked demand model make about strategic interaction?Why are prices sticky? Does the empirical evidence support the notion of price stickiness?
What do you understand by the term ‘‘strategic interaction’’.
Compare and contrast the pricing outcomes in perfect and monopolistic competition.
In what ways does a ¢rm acquire market power in a monopolistic market?
What are economies of learning. Distinguish between the learning curve and the experience curve. Distinguish between a 90% and a 70% learning curve. What are the sources of lower unit costs? What are
What are economies of scope? If economies of scope are signi¢cant, then what are the implications for the strategy of the ¢rm?
What do you understand by the term ‘‘economies of scale?’’ What are the main sources of economies of scale? How might economies of scale be measured?
According to many empirical studies of long-run average cost in various industries, the long-run average cost curve tends to be L-shaped. Does this mean that there are constant returns to scale at
According to Dean’s classic study of a hosiery mill, total cost ¼ $2,936þ1.998Q.How does marginal cost behave? How does average cost behave? What factor would account for Dean’s ¢ndings on the
What are the di¡erences between explicit and implicit costs? Why do economists concern themselves with implicit costs?
What are the di¡erences between economists’ and accountants’ views of costs?
The short run cost function of the ¢rm is of the form:TC ¼ 300 þ 50Q 10Q2 þ Q3^ What is the value of ¢xed costs?^ Write expressions for average total costs, total variable costs, average
Why do economists argue that cost curves are U-shaped? Why do diseconomies occur in the short run?
Distinguish between short and long-run cost curves. Demonstrate how the longrun average cost curve is derived from a series of short-run cost curves.
Distinguish between ¢xed and variable costs. Comment on which potential cost sources are truly variable and those that are wholly or partially ¢xed.
The following function was estimated for the bus industry:Q ¼ 1:80ð2:4Þþ 0:21Bð2:0Þþ 0:41Fð3:3Þþ 0:37Lð3:2Þadjusted R2 ¼ 0:97 Explain the role and function of the exponents in the
A ¢rm claims that it has the following production function:Q ¼ 3 þ 4L þ 2P where Q ¼ output, L ¼ labour and P ¼ paper.^ Does this production function include all relevant inputs? Explain.^
Describe what is meant by increasing returns to scale, decreasing returns to scale and constant returns to scale. Discuss the factors that might be responsible for increasing and decreasing returns.
Discuss the meaning of the production function. What is the short run? What is the long run? How does the short-run production function di¡er from the long-run production function?
De¢ne Farrell E⁄ciency and distinguish between technical e⁄ciency and cost (or price) e⁄ciency. Using the following data (input requirements per 1,00 tonnes of product) construct a best
Historically, the UK has a poor comparative record in terms of productivity. What factors might account for the poor UK performance? What policies might the government adopt to increase productivity?
The following are estimates of increases in inputs and total productivity for manufacturing and service industries in the UK for 1981^1989:^ Do these changes represent unequivocal increases in
Demonstrate, using isoquants, how labour productivity, capital productivity and total factor productivity are measured?
Does technical progress inevitably mean the production process becomes more capital-intensive?
Are ¢rms more likely to engage in capital-using or labour-using technical progress?
What is technical progress? Distinguish between di¡erent types of technical progress. What impact do these di¡erent notions of technical progress have on:^ The position of the isoquant?^ The shape
Why would a ¢rm seek to equate the marginal rate of technical substitution to the ratio of factor prices? What are the consequences of a failure to achieve such an equality?
De¢ne the marginal rate of technical substitution (MRTS)? What is the relationship between the MRTS and the marginal products of the factors?
What factors determine the shape of an isoquant? What shapes might isoquants take?
You are asked to estimate a demand function for electricity. What information would you need to collect to estimate such a function?
If you were to estimate demand functions for beer, wine and spirits now, in what ways would you expect the results to be di¡erent from those of Du¡y (1983). In your answer consider the own price

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