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Questions and Answers of Management And Artificial Intelligence

2 A firm uses labor as its only variable input. Its daily production function is given by:where L is measured in hours of labor time per day. All markets are perfectly competitive. The price of
(d) Suppose the wage rises to $800 per week, how many workers will the firm hire? (Assume P = 300.) Again, illustrate the answer on a diagram. What have you just shown?
(c) Suppose the price of bicycles rises to $300. Determine the new VMPL and, hence, determine the number of workers the firm will hire after the price increase. Illustrate your answer on the diagram.
(b) If the wage of workers is set at $600 per week, how many workers will the firm hire? Draw a diagram to illustrate your answer.
(a) Calculate, and record in a table, the marginal product of labor (MPL)and the value of marginal product of labor (VMPL) at each level of employment.
1 A manufacturing firm produces bicycles using labor as the only input according to the following weekly production table. The bicycles are sold in a competitive market for a price P = $200
(d) Show that profits are greater at the merged firm than at when the two firms were operating as separate entities. What problems is the merger likely to face?
(c) Suppose the two firms were to merge and maximize joint profits.Determine the price the upstream division will charge the downstream division, i.e. determine the optimal transfer price.
(b) Determine the price the upstream firm will charge the downstream firm for the output produced by the upstream firms
(a) Determine the demand for output at the upstream firm from the downstream firm as a function of the price charged by the upstream firm.
6 Suppose there are two separate firms. The upstream firm is the only producer of an input required by the downstream firm and the upstream firm has no other customers. One unit of input at the
(d) Demonstrate that the firm’s profits are greater when the optimal transfer price, as opposed to the transfer price set by the manager of the production division, is set.
(c) Suppose the firm allows the manager of the production division to set the transfer price. Determine the transfer price the manager will charge the marketing division, assuming the manager
(b) Calculate the output of the two divisions and the price the marketing division charges its customers if the production division sets the optimal transfer price.
(a) Determine the profit maximizing transfer price for the firm.
5 Suppose there is a firm with two divisions: an upstream division and a downstream division. One unit of output from the upstream or production division is used for each unit of output of the
(d) Show that total profit is higher for the optimal prices than it is for the prices using the inverse elasticity rule.
(c) Now suppose that the firm takes into account the relationship between the two goods and sets the prices accordingly. Determine p1 and p2. Are the prices higher or lower than the prices using the
(b) Suppose the firm ignores the relationship between the two goods and uses the inverse elasticity formula to set the prices of the two goods as a markup over marginal cost. Calculate p1 and p2.
(a) Are these two goods substitutes or complements? Explain.
4 Consider a multiproduct firm that has a monopoly in the production of each of the two goods. Suppose the demand functions are given by:The total cost functions for production of each of the two
(d) Show that total profit is higher for the optimal prices than it is for the prices using the inverse elasticity rule.
(c) Nowsuppose that thefirm takes into account the relationship between the two goods and sets the prices accordingly. Determine p1 and p2.Are the prices higher or lower than the prices using the
(b) Suppose the firm ignores the relationship between the two goods and uses the inverse elasticity formula to set the prices of the two goods as a markup over marginal cost. Calculate p1 and p2.
(a) Are these two goods substitutes or complements? Explain.
3 Consider a multiproduct firm that has a monopoly in the production of each of the two goods. Suppose the demand functions are given by:The total cost functions for production of each of the two
(d) Determine the price charged by the firm. Compute costs at the two plants and, hence, determine profits at the firm.
(c) Show that the profit maximizing rule for output allocation between the plants is satisfied.
(b) Use the profit maximizing rule to determine the output produced at each of the two plants and, hence, the total output of the firm.
(a) State the profit maximizing rule that determines how much output the monopoly will produce at each plant.
2 Consider a multiplant monopoly facing demand given by:The firm operates two plants with total cost functions given by:
(d) Determine the price charged by the firm. Compute costs at the two plants and, hence, determine profits at the firm.
(c) Show that the profit maximizing rule for output allocation between the plants is satisfied.
(b) Use the profit maximizing rule to determine the output produced at each of the two plants and, hence, the total output of the firm.
(a) State the profit maximizing rule that determines how much output the monopoly will produce at each plant.
1 Consider a multiplant monopoly facing demand given by:The firm operates two plants with total cost functions given by:
(d) The Cairns Group includes countries like Australia and Canada which export agricultural products but have very limited domestic support programs for producers of agricultural products.
(c) Now consider a country which imports agricultural products from the US or the EU. What are the terms of trade and volume of trade effects of these export subsidies in this importing country?
(b) What are the terms of trade and volume of trade effects of such an export subsidy in the United States or the EU?
(a) Use a graph like Figure 12.1 to describe the effects of an export subsidy on a country which exports agricultural products.
5 The US and EU both use export subsidies to support producers in their agriculture sectors.
4 Australia and New Zealand entered into the “Closer Economic Relations(CER) Trade Agreement” on January 1, 1983. Given your understanding of PTAs and Game Theory, try to describe the Agreement
(c) Do these tariff data support or contradict your answer to part (a)?What effect would a reduction in the tariff on imported chickens have on the price of chickens in Canada? Use a graph to answer
(b) The Uruguay Round included Articles which explicitly prohibited supply management programs. As a result, these countries were required to replace the import restrictions implied by Marketing
(a) Given discussions of entry and exit problems in Chapter 10, discuss whether these Marketing Boards provide a barrier to entry. If so, what effect would this have on the structure of competition
3 Until recently, some countries including Australia, Canada, and South Korea used supply management programs to control production and pricing in a number of agricultural sectors. Marketing Boards
government tariff revenue
surplus of Canadian wine producers
welfare of Canadian wine consumers
the price of wine in Canada
Canadian wine production
the volume of wine imports
(b) Suppose that the government removed the tariff on imported wine.What would happen to:
(a) Using a graph like Figure 12.1, illustrate this initial trading equilibrium in the Canadian wine market using the Canadian demand and supply curves for wine.
2 Suppose that the world price of wine pwine = $10 per bottle, and that Canada is a net importer of wine. To promote and protect wine production in the Niagara peninsula, suppose that the Canadian
(d) If e rises from e = 1 to ẽ = 1.5, is Home better off or worse off? Is this an improvement or a deterioration in Home’s terms of trade?
(c) If the terms of trade are e = Pguns/Proses = 1, are there gains from trade? What will be the pattern of trade?
(b) Which country has the comparative advantage in rose production, and gun production?
(a) Which country has the absolute advantage rose production, and gun production?
1 The following table shows the unit labor requirements for two commodities in two countries, Home and Foreign.
(g) List the key assumptions made in the above analysis.
(f) Which scheme will the high-cost firm prefer? Which scheme will the low-cost firm prefer? Which of the above three schemes is most efficient from the point of view of society as a whole? (Remember
(e) How much does each firm spend on pollution abatement? What are the total resources spent on pollution abatement? What are the total costs of the permit mechanism to each firm?
(d) Another option for the government is to give each firm a number of pollution “permits” such that the total number of permits equals the desired amount of pollution, 104, and then let the two
(c) What are the tax payments of each firm? How much does each firm spend on pollution abatement? What are the total resources spent on pollution abatement? What are the total costs of the tax scheme
(b) Suppose the government decides to cut the total amount of pollution by 48 percent using a per-unit tax on pollution output.What level of the pollution tax will result in a decrease in total
(a) Suppose the government decides to cut the total amount of pollution by 48 percent. One way to do this is to require each firm to cut pollution by 48 percent. Calculate the amount each firm spends
4 Suppose a country has two firms, each engaged in different industries.Suppose that the marginal cost of pollution reduction (MCR) at one firm is given by:where QR is the amount of reduced
(d) Does the tax have the desired effect? If not, what change would you suggest? Explain.
(c) In an attempt to induce the firm to produce the socially optimal output level, the government imposes an effluent fee on the firm of $5 per unit of newsprint produced. Calculate the firm’s
(b) Determine the marginal social cost of the firm’s newsprint manufacturing. Calculate the socially optimal output of newsprint from this firm.
(a) Determine the output of the newsprint firm.
3 A newsprint company has (private) marginal costs given by:Assume that the price of newsprint is determined, in a competitive market, to be $20 per unit. A by-product of the newsprint manufacturing
(d) Determine the price if the firm were required by regulation to charge a price equal to average cost. What problems do you think an average cost pricing scheme will encounter?
(c) If the marginal cost pricing rule is brought into effect, will the monopolist continue business or will it leave the industry? Explain.
(b) Determine the average cost curve of the monopoly. Calculate the profit per unit and the total profit for the unregulated monopolist.Calculate the profit per unit and the total profit for the
(a) Calculate the equilibrium price and output level of the monopolist.
2 Let the inverse demand curve for a monopoly firm be:and let the total cost of the firm be:
(c) Make a rough sketch of the demand curve and the marginal cost curve of the monopolist. Indicate on the diagram: (i) the output level produced by the unregulated monopolist; (ii) the socially
Calculate the socially optimal output level. Calculate the price that government regulators will have to set under the marginal cost pricing rule in order to induce the monopolist to produce the
(b) Suppose government regulators decide to use marginal cost pricing to induce the monopolist to produce the socially optimal output level.
(a) Calculate the equilibrium price and output level of the monopolist.
Discuss the differences between these two versions of the strategic effect of the incumbent’s investment strategy. In each case, whose profits is the incumbent interested in? If firms are competing
accommodates entry
deters entry
4 Identify the strategic effect of an incumbent firm’s investment strategy from Section 10.3 when the incumbent:
(c) An optometrist installs an in-house facility to make glasses to fit a prescription while-you-wait.In each case, discuss whether the firm is following a top dog, puppy dog, lean-and-hungry look,
(b) A clothing outlet sells only last season’s fashions at bargain basement prices.
(a) A maker of ski boots and bindings designs a new ski boot to be used only with its own bindings, with increased safety properties.
3 Consider the following examples:
(c) Now suppose F = 25. Repeat parts (a) and (b). Would the incumbent want to follow the same strategy as in part (b)? Relate your answer to the cost of entry deterrence.
(b) Now suppose the incumbent deters entry. Solve for market price, and output and profits of each firm. Would the incumbent firm rather accommodate or deter entry? Explain your answer.
(a) Suppose marginal cost c = 5, and fixed cost F = 100. Solve for the equilibrium market price, each firm’s level of output, and equilibrium profits for both firms, when the incumbent accommodates
2 In Section 10.1.2, we showed that when the market demand function was given by p = 120 − (K1 + K2), the incumbent firm deterred entry by producing the level of output and earned profits π1d
(c) Can you interpret the fixed cost F as a cost of entry deterrence? Is the incumbent more or less likely to deter entry as F gets larger?
(b) For which values of the fixed cost F will the incumbent deter entry?
1 In Section 10.1, we showed that when the incumbent firm 1 accommodated entry, it earned profits:When this same firm chose capacity to deter entry, it earned profits:The incumbent will deter entry
(c) Many retailers who include warranties with the products they sell also offer extended warranties which consumers can purchase at an extra cost. What type of information problem would an extended
(b) If a consumer would never buy a retailer’s product more than once, what would happen to the retailer’s incentive to offer a warranty?Would your answer change if consumers could find out about
(a) What sorts of informational asymmetries exist between buyers and sellers which would motivate retailers to offer warranties? Are these moral hazard or adverse selection problems?

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