Questions and Answers of Managerial Economics 15th

Suppose the monthly cost of maintaining a certain machine in operating order is a function of the time elapsed between shutdowns for servicing and maintenance as follows: C = 1,400 — 307" + 0.7T2
Solve for the maximum or minimum value of the following functions, using the second-order condition to specify whether it is a maximum or a minimum:(a) Y = -32 + bX - 2X2 (b) Z = 28 — 8X + X2 (c) A
Find the first derivative, with respect to X, of the following functions:(a) Y = 36 + 4.5X3 (b) Y = 8 — 3Z2, where Z = 4 + 3Y3 (c) Y = 7 KX, where X = 3 — 2K2 (d) Y — —16 + 472 — 6/C3,
Rewrite Y = f(A) in symbolic form as a function that is (a) linear (b) quadratic (c) cubic (d) exponential (e) power (f) hyperbolic
Explain the chain rule of differentiation.
Explain the function-of-a-function rule of differentiation.
Explain the power rule of differentiation.
Explain the logic of using the derivatives of a function to find the maximum or minimum of that function.
Define the following terms:(a) function (b) independent variable (c) dependent variable (d) slope parameter (e) constant (f) intercept (g) quadratic function (h) exponent
Hilltop Raceway Corporation has been formed to develop a 100-acre site into a motor-racing facility. At this point the final decision has not yet been made whether it will be an oval circuit with
Rasta Resorts, Inc., is planning to develop some beachfront land on an eastern Caribbean is¬ land. Plan A is to build a hotel-casino for short-stay guests (up to one week), whereas plan B is to
Dimmock Dry Dock Services is considering installation of a new dry dock facility. There are two competing propositions. The first plan would cover two acres of waterfront land and be capable of
A large real estate firm has half a million dollars which it wishes to invest in urban housing development projects. The available opportunities have been carefully evaluated and the four most
You have recently been hired as an assistant investment analyst in a small corporation which promotes new products and inventions. Your boss has asked you to evaluate and rank four potential
A consortium of business professors at a city university are thinking of investing in the takeout food industry. A location has been found which is considered to be highly suitable because of its
Marilyn Monibaggs is considering investing in a small shop in the downtown area of a large city. Ms. Monibaggs has not been lax in her investigations but has found that only two locations are
Custy Canoe and Kayak, Inc., is considering investing in a facility that would allow it to manu¬ facture lightweight fiberglass sports kayaks. The proposed plant would involve an initial invest¬
The Anderson Electronics Company is considering investing $1 million in a major advertising campaign. This expenditure will be tax deductible at the end of the year in which it is incurred, and
The Omega Investment Corporation has more than half a million dollars to invest as the result of a recent windfall gain from the revaluation of a foreign currency it was holding. Failing all else,
Why can the payback criteria be regarded as appropriate, in a crude way, for a risk-averse investor?
Suppose investment projects are divisible, in the sense that any part of each project can be undertaken, with the return being proportionate to the investment. Does this factor change the analysis?
Under what circumstances might the profitability index disagree with the NPV criterion in the ranking of mutually exclusive projects? Explain.
Where projects are mutually exclusive, the IRR criterion may rank projects in conflict with their ranking by the NPV criterion. Why? Does this conflict invalidate the IRR criterion?
Why is the average rate-of-return criterion inferior to the other investment criteria discussed?
Under what circumstances is the use of the payback-period investment criterion appropriate?
Why is the cost of capital to the firm likely to be a step function of the amount of funds de¬ manded for investment purposes?
When comparing possible investment projects, why is it important to ensure that all projects have been evaluated using the same depreciation method?
In calculating the expected net revenue stream associated with an investment project, what factors enter the calculation?
Explain in three sentences why the NPV criterion and the IRR criterion must always agree on the accept/reject investment decision, given the availability of sufficient funds.
The Billion Bytes Computer Company has grown from a start-up venture in the early 1980s to become a multimillion-dollar-sales computer company in the mid 1980s. But times are getting tougher for BBC,
Whaleback Mountain Ski Resort is surrounded by other ski resorts and is barely making ends meet. The resorts closer to the city get more of the business, and the resorts that offer superior trails
Stephanie Ricardo has recently taken over her family’s restaurant business. For twenty-five years the Ricardo Family Restaurant has served fine family fare—nothing exotic, just good basic
Getaway Island Tours operates a vacation planning and travel booking agency in the downtown area of a large northeastern city. They organize package tours and promote them in the local media. The
Main Street Plumbing and Heating is a business owned and operated by Dick Watson and his wife Mary in a small Midwestern city. Dick has one full-time apprentice, and Mary works as secretary,
George and Sheila Boggs are retiring and moving to Florida, and will soon put their house on the market. Most of their wealth is tied up in the house, so it is particularly important that they get a
Upton College is a small liberal arts college located in upstate New York that has run into finan¬ cial difficulties in recent years. The decline in the number of students since the passing of the
Richard Koster Legal Associates is a law firm in Boston that has special expertise in immigra¬ tion law, since Richard worked for the Immigration and Naturalization Service (INS) for several years
The Ginsung Motor Company manufactures automobiles in Taiwan and has accumulated a great deal of experience supplying the home market. Recently it has been considering entering the United States
Dixieland Ice Cream’s profit rate has been declining over the past three years and is below average in the industry. Management has asked you to advise them as to ways that profitability may be
Make up a list of firms and their brand name products that appear to be following (a) a broad- based cost-leadership strategy; (b) a broad-based differentiation strategy; (c) a cost-focus strat¬
When is a focus strategy likely to be the firm’s best option?
What are the implications of quality leadership for product design?
What issues should the firm consider before deciding to follow a differentiation strategy?
How do Peters, Waterman, and Austin’s “two essential ingredients” fit in with Porter’s two main generic strategies approach?
What pricing and advertising strategies are likely to best complement a cost-leadership strategy?
What are the implications of cost leadership for product design?
Why is the price elasticity likely to be relatively high, and the advertising elasticity likely to be relatively low, for search goods?
What issues should the firm consider before deciding to follow a cost-leadership strategy?
Distinguish between “competitive strategy” and “competitive advantage,” in terms of means and ends. How does “competitive advantage” tie in with the objective of the firm?
Andrew Evans, Inc., produces and sells toys for babies and toddlers, and the firm has enjoyed considerable success in the past few years as the post-World War II "baby boomers have made their own
Meghan Alexandra Perfumes, Inc., manufactures a product line of exotic perfumes which are marketed worldwide. Sales of this perfume have been very strong, approaching a quarter of a million ounces in
Concord Microwave Systems, Inc., manufactures and markets radar detectors. Their original product, the Diplomat, had been the industry standard of excellence for several years, until their new
The automobile-manufacturing industry has three major domestic producers, one minor and several minuscule domestic producers, and several major foreign producers, each supplying vehicles to the North
The Silk Purse Cosmetics Company operates in close competition with several other major sup¬ pliers of cosmetics and toiletries. In this market, consumers do not seem to be very price con¬ scious:
Vincenzo Pizzeria Limited operates the only pizza place in town although there are several other fast-food outlets in peripheral competition with Vincenzo. The manager, Vincenzo Fiorelli, feels that
Record Breakers is a downtown store selling phonograph records and tapes. Its nearest compet¬ itor is about six blocks away, and its clientele is composed almost entirely of downtown office workers
Flintrock Fixtures is a small partnership that produces and markets a variety of kitchen and bathroom fixtures in ceramics, metal, and marble. The market for these products in Flintrock’s area is
The McWilliams Bottling Company bottles and markets under license a major brand-name soft drink. Prices of soft drinks are virtually dictated by the market and the preponderance of dis¬ pensing
The Thompson Textile Company has asked you for advice as to the optimality of its advertising policy with respect to one of its products, product X. The following data are supplied:(a) Is
Outline the issues involved in the argument that advertising and promotional expenditures raise the product differentiation barriers to entry. Would these barriers exist without advertising’ Why?
If there are residual impacts in future periods from this period’s advertising expenditure, is it necessarily excessive to spend beyond the point where short-run incremental cost of advertising
Outline the issues involved in attempting to predict the impact of an advertising or promotional campaign.
If firms decided to limit their advertising expenditures to a given amount, would market shares then remain stable at the present levels? Why or why not?
Why do oligopolists face a “prisoner’s dilemma” problem when it comes to deciding on the level of advertising expenditures?
Outline the process underlying the simultaneous selection of the optimal level of advertising and the optimal price.
What is the rule for optimal advertising expenditure in the short run, given price and average variable cost levels? Explain.
Why should we expect diminishing returns to (eventually) apply to advertising and promotional efforts? Outline several reasons.
Discuss the idea of a minimum threshold of advertising and promotional effectiveness. Is it reasonable to argue the existence of such a threshold?
Under what conditions may a firm expect ceteris paribus conditions to hold for changes in its advertising and promotional expenditures?
You are the newly hired vice-president of design and marketing at Bender Fender Automotive Design and Aerodynamics, Inc. Bender Fender has grown substantially in the past few years as a result of the
Prentice Plumbing and Pipes Limited specializes in household plumbing installation and re¬ pairs. The sales manager received a call this morning to provide a written price quotation for the
Fact Finders Limited, a marketing research company, has been asked by the marketing director of a large food-processing company to submit a proposal for a small market research project aimed at
Bids have been called for the construction of a turbine generator for the Milford Power Station. Your company accountant has examined the specifications and has established the following costs
Your company, Canino Construction, has decided to bid on a government contract to build a bridge 50 miles from the city during the coming winter. The bridge is to be of standard govern¬ ment design
A large department store has called for bids for the following contract: A truck plus its driver must be available, given one day’s notice, whenever the store’s own trucks are fully utilized, to
Bids have been called for the fabrication of a steel Watergate, and Stenson Steel is in the process of preparing to bid on this contract. The practice in your company has been to charge each contract
The Esna Fabricating Company manufactures valves, faucets, and similar items under contract for various industrial and commercial clients. Whenever the company has no special jobs to do, it uses its
Your company, Bright Paints, is one of several companies manufacturing a special reflecting paint used for traffic signs. Your two major customers are the state and the federal Departments of
The Billings Printing Company is preparing to bid for a contract to supply half a million bro¬ chures to a national mail-order company. The firm has calculated its incremental costs to be $50,000.
Why is collusive bidding illegal? Does it hurt the customer? The competing firms? Other firms?
Explain the logic behind value analysis. What is the relationship between value analysis and attribute analysis of consumer choice behavior?
Outline the factors that would cause you to use a lower markup on incremental costs (as com¬ pared with your usual markup) in a particular bidding situation.
Explain how the strategy of marking up incremental costs by a standard percentage (and subse¬ quently winning some contracts and losing some contracts) may over a period of time give equiv¬ alent
Outline the different types of bids that may be tendered. What is the relationship between the fixed-price bid and the other two types of bids?
Explain why the strategy of choosing the bid price with the highest expected value is likely to generate the greatest contribution to overheads and profits over a large number of successful and
How would you value the goodwill that is expected to be generated as a result of undertaking a particular contract? If there is expected goodwill, would you be prepared to bid lower than otherwise?
In calculating the incremental costs of a particular project, how would you treat the possible future cost of a lawsuit that may occur as a result of this project, where the cost of such a lawsuit
Make a list of those items that you would expect to enter the incremental cost calculation for a contract to remove the sea gulls from the vicinity of a major coastal airport.
Outline three situations in which you have recently been the buyer in a competitive bidding or price quote situation. (Even if you received only one quote in each instance.)
Yashoko Camera Company is the first to offer a new electronic camera that uses a magnetic disk to store visual images instead of film. After taking photographs in the usual way, the disk is
Bowers Automotive Equipment is planning to launch its new product, a pair of miniature radio transmitters that would allow the owner to locate a car that was misplaced in a crowded parking lot, or
Tropical Delights, Inc., is considering introducing a new fruit juice to the mainland market. This juice, to be called Tropic Morning, is a mixture of various tropical fruits, but TDI plans to keep
Hi-Techniks, Inc., has recently received a patent on a new product, an electronic cockroach deterrent. This device emits a high frequency noise that drives cockroaches out of the user’s house or
The Knowlton Chemical Company plans to introduce its Bug Buster, a sex-lure trap that at¬ tracts all kinds of flying insects and beetles. The technology is simple—there is just one active
Waltham Wallpaper Company has developed a new type of wallpaper that is easier to apply. WWC calls their product Magicpaper. It does not need glue, nor does it need to be immersed in water before
Boxem-Buddies, Inc., has developed a new exercise machine that will appeal to those who like to combine an exercise program with boxing practice. After a successful market-testing pro¬ gram they
The Sharper Shirt Company has recently been formed by an aspiring young designer, Francine Stuart. Her first product will be a man’s shirt. At this point, neither the price nor the quality decision
Quick New Products, Inc., specializes in launching new products and uses intensive television advertising campaigns to encourage high-volume sales before any other firm can enter with a competing
The Eastman Paint Company has developed a new paint which is unique in that it allows the user to turn ordinary glass windows and doors into one-way glass. Moreover, it prevents the transmission of
What are the first-mover advantages? What risks does the first-mover face?

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