Questions and Answers of Business Economics And Managerial

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
What are the di⁄culties that a ¢rm faces in making estimates of the potential demand for a new product? What methods might it use to gauge potential consumer reaction?
The estimated log-linear regression, where PX ¼ the price of the product, PO ¼ the price of another product and Y ¼ real income, is as follows:QX ¼ 450 1:53PX þ 0:87PO þ 2:36Y R2 ¼ 0:91
What is the identi¢cation problem?
What are the advantages and disadvantages of using regression analysis to estimate a demand function?
What are the advantages and disadvantages to a company of using surveys and questionnaires to estimate demand functions?
In what circumstances should a company employ survey methods to obtain more information on the demand for its product and the relative merits of its product compared with those of rivals?
The estimated own price elasticities for rail travel are as follows:First class 0.5 Commuting 0.4 Business 0.2 Personal 1.0 Leisure 1.4^ Suggest reasons why elasticities for business travel are
Would you expect the income elasticity of demand for electricity in a rich country to be greater or less than for digital (DAB) radios?
Explain why the price elasticity of demand will be greater for luxury motor cars than for a pint of milk?
Explain the concept of cross elasticity of demand. What does a positive cross elasticity of demand and a negative cross elasticity of demand tell us about the nature of a good? What are the
Explain the concept of income elasticity. Explain the signi¢cance to a ¢rm of:^ A good with a positive income elasticity of more than 1.^ A good with a positive income elasticity between 0 and 1.^
How can the elasticity of demand at a point on a non-linear demand curve be measured?
If management’s objective is to maximize revenue, how should price be changed if:^ The ¢rm is currently charging a price in the elastic portion of the demand curve?^ The ¢rm is currently charging
Explain the relationship between marginal revenue and elasticity of demand. Why it is relevant to managerial decision making?
Describe the elasticity ranges of the linear own price demand curve and discuss the signi¢cance of this information for price setting.
What is the signi¢cance for decision making of the slope of the demand curve and the own price elasticity of demand?
Identify the main factors that should be included in a demand function for seaside holidays in a hot climate.
How do consumers react to changes in price according to indi¡erence curve analysis, Lancaster’s analysis and behavioural analysis.
What are the assumptions of the behavioural approach to consumer behaviour?What are the main implications?
What is a hedonic price? How are they estimated? How might they be used by consumers to decide whether they are obtaining value for money?
What advantage does the characteristic model have over the traditional model for someone writing advertisements?
Given the data below on the characteristics of shirt brands construct a diagram in characteristic space showing:^ The choice facing the consumer in terms of brands.^ The e⁄ciency frontier.^ Which
Using Lancaster’s theory distinguish between a characteristic and a market good and explain the concept of consumption technology?
Using indi¡erence curve analysis analyse the impact on consumption of both goods of a fall in the price of one good. Identify the income and the substitution e¡ect.
What conditions are necessary for the consumer to maximize utility? Why must the slope of the indi¡erence curve and the budget line be equal for the consumer to maximize utility?
Explain the concept of the budget constraint and the role of relative prices and income in determining its position and slope.
Explain the concept of an indi¡erence curve for an individual consumer choosing between two goods. What is the marginal rate of substitution?
Why do normally risk-averse individuals play the National Lottery?
Why are managers in large organizations risk-averse and entrepreneurs riskloving?
What routines might management develop to cope with uncertainty?
Explain the concept of a decision tree. How might it be used to clarify problems of uncertainty in decision making?
The pharmaceutical industry is said to have a high average rate of return and a high coe⁄cient of variation. The electricity industry is said to have a low average rate of return and a low
Distinguish between and explain the di¡erences between maxi-min, maxi-max and mini-max regret decision criteria. Using the following information identify which project a decision maker using each of
Using the following data calculate the expected value, the standard deviation and the coe⁄cient of variation for each of the projects. Which project is the least risky and which is the most risky?
Draw a diagram illustrating the shape of a set of indi¡erence curves for a risk-averse and a risk-loving individual. Explain why the indi¡erence curves take the shape you have drawn.
Explain the di¡erence in attitude toward risk and uncertainty of individuals who are described as risk-averse, risk-neutral and risk-loving.
Distinguish between risk and uncertainty. Identify two situations of risk and two of uncertainty and identify the characteristics that led to your choice.
What does the term ‘‘corporate social responsibility’’ mean? Why should ¢rms expend resources on such concerns.
How would the objectives of a large ¢rm di¡er for:^ A small owner-managed ¢rm?^ A members-owned mutual?^ A consumer co-operative?
How will managers react to the following changes if they are pro¢t maximizers, on the one hand, and sales maximizers, on the other:^ An increase in demand?^ A fall in demand?^ An increase in ¢xed
What are the main assumptions about the objectives of the ¢rm in the Cyert and March behavioural model?
What factors determine the pro¢t constraint placed on managers in the managerial theories of the ¢rm?
Will the pro¢t-maximizing output ever coincide with the sales-maximizing output?
How does the price^output combination di¡er between a sales and pro¢tmaximizing¢rm?
What are the main assumptions about objectives in the managerial theory of Baumol?
What are the main criticisms of the pro¢t maximization hypothesis? Can it be defended as a reasonable description of the behaviour of ¢rms?
What rules must a ¢rm follow to maximize pro¢ts?
Companies A, B and C have the following share ownership structure:^ Firm A: the largest shareholder is an individual owning 10% of the equity, a further ¢ve members of the family own 25%, with the
Is football di¡erent? Is the listed company an appropriate organizational form or should they remain members’ clubs?

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