Questions and Answers of Managerial Economics 15th

What is the product-life-cycle hypothesis? What determines whether the innovating firm’s sales volume increases or decreases as entry takes place?
What factors operate to cause the price of a new product to decline as time passes?
How does the type of product influence the new-product pricing decision?
When is the limit price a skimming price, and when is it a penetration price? Why?
What pricing models can we use to select the penetration price? Why?
Under what circumstances could a skimming price higher than the short-run profit-maximizing price be EPV maximizing?
Under what circumstances is the skimming price appropriately the short-run profit-maximizing price?
Why is an estimate of the demand situation particularly important for new products?
When is a “new” product best analyzed in the context of an established product market? Why?
What arguments, for or against resale price maintenance, can you imagine a reseller might voice in support of or in opposition to resale price maintenance.
What is resale price maintenance? Can you think of reasons why a manufacturer would want to control the minimum price of its product at the retail level?
What is predatory pricing? How is predatory pricing to be distinguished from vigorous price competition?
Under what conditions is price discrimination allowable?
When is or is not conscious parallelism or price leadership and followership likely to be re¬ garded as a pricing agreement.
For a price-fixing conspiracy to be proven, must the Justice Department be able to produce a written and signed agreement?
Why are market-sharing agreements tantamount to price fixing? What kind of market sharing agreements may be construed as a price-fixing agreement?
What is a horizontal price agreement, as distinct from a vertical price agreement?
Admiral Computer Company is planning to introduce a new version of its rather successful personal computer. The new model, designated the Personal Assistant, will have 128K bytes of RAM memory
Emerson Electric Corporation is considering the appropriate prices for two video cassette re¬ corders that are being made in Japan and imported (as are all VCRs at this time) with Emer¬ son’s
Last fall Peripherals conducted a three-month national mail-order campaign with its line of personal’accessories relating to BMW automobiles. An advertisement, complete with photo¬ graphs of the
The refrigerator market is characterized by a wide diversity of product offerings and a price range from less than $400 to more than $1,200, depending on the features of the specific refrig¬ erator.
The Napper Bag and Canvas Company, Ltd., is a specialist manufacturer of down-filled sleep¬ ing bags for sale in the camping equipment market. In this market there are several large com¬ panies
The Archibald Truck Service (ATS) Company has been successfully servicing and repairing large trucks and tractor trailers for several years, specializing in Kenworth, Peterbilt, and Mack tractor
The Laura Ann Boutique purchases a line of ladies dresses from a wholesaler and pays $30 per dress regardless of quantity purchased. These dresses are marked up 33.33 percent over their invoice cost
The Pittsburgh Plastics Company introduced a new product in January which received strong initial support and has shown a steady growth of sales in subsequent months. The initial price was set
Regression analysis of the variations in prices and quantity demanded for Winton Garden Equipment’s major product (conducted under controlled conditions in a consumer clinic by their marketing
The Ajzenkopf Company has been in operation for almost fifteen years and has enjoyed consid¬ erable success in the manufacture and sale of its glass vases.The Ajzenkopf plant at present has a
Why would a firm place items temporarily “on sale”? What dangers are there in this practice?For what kind of products does promotional pricing work best? What kind of person responds to
What considerations enter the firm’s decision to offer a discount for quantity? How deep can its discount be? Explain your answer in terms of marginal costs and revenues.
Explain how the firm may benefit from a product-bundling strategy, in the context of a com¬ puter manufacturer offering to sell the computer and various software programs separately, or the computer
For what type of product is it feasible to infer higher product quality by setting a higher price? Under what circumstances, and for what objective, would it serve the firm’s objective to set price
Summarize the issues involved in product-line pricing strategy.
Explain why the presence or absence of desirable attributes in your product influences the opti¬ mal price positioning of that product in an established market.
Discuss the conditions under which a markup rate, if initially optimal in terms of the firm s objective, will remain optimal despite shifts in the cost and demand curves.
Explain why there is a range of markup rates which make it preferable to avoid search costs. What does this range depend on?
Can the markup formula linking price, average variable cost, and the price elasticity of demand be used to “plug in” the price elasticity and AVC figures to “solve for’ the profit-maximizing
When is it likely to be profit maximizing to use a rule-of-thumb price determination procedure rather than to determine price on the basis of estimated cost and revenue curves.
> General Statics Corporation is organized into a manufacturing division and a marketing divi¬ sion. Each division manager is responsible for his or her division’s profits. The manufacturing
Holiday Pleasure Tours is a small company that provides a two-week holiday package on a Ca¬ ribbean island. It is a member of the Association of Island Tour Operators, which is effectively a cartel
The Bartram Bitumen Company has two plants producing bituminous tar for its market in which it has a virtual monopoly because of the remote location of other firms producing bitumi¬ nous tar. The
The Thomas Tent Company has two separate markets for its midsize tent. The domestic market is characterized by the demand curve P = 100 - 15 Q, and the foreign market is characterized by the demand
Analyze graphically the case of a two-plant firm that practices price discrimination in two sepa¬ rate markets. Assume two sets of cost conditions and two demand situations, and show the fol¬
What is cross hauling? List several reasons why you would expect to see cross hauling in spatial markets.
In what ways can a firm increase its sales in a spatial market?
In spatial competition, why does the delivered price increase at a decreasing rate as the distance from the buyer and seller increases?
What is the transfer pricing problem? What might happen if the marketing division of the firm was required to accept whatever the manufacturing division of the firm produced at a transfer price equal
Outline the three degrees of price discrimination. What is the basis of discrimination in each case? What conditions must be fulfilled to allow the firm to practice price discrimination?
Do you think that OPEC is still an effective cartel? Or is it a price leader instead? Why?
In principle, explain how a firm may increase its profits by discriminating between two distinct markets for its products.
Outline the principle of profit maximization as applied to a firm that operates three plants within the same market.
Discuss the operation of cartels and the incentive to undercut the cartel price. Does it make a difference when the products are differentiated and the “cartel price” is in reality a structure of
State what the EMC curve represents for the multiplant firm.
Two bakeries serve a small, isolated rural community. Golden Bread Company is the low-cost price leader, and Farmer’s Family Bakery is the price follower. Golden’s cost function has been
Fiori Pasta Company produces high-quality pasta products. It has estimated its demand curve for its spaghetti to be P = 39.898 — 0.03757Q, where Q represents thousands of cartons (each containing
The cement industry in a particular region is characterized by five firms producing what are highly similar products. Over the years these firms have found that active price competition is to be
In the market for introductory economics textbooks there are several competitive textbooks, whose prices range from $15.95 to $22.95. One of the established texts is the major seller and is
In a dominant-firm oligopoly, the market demand curve has been estimated by the dominant firm to be P — 100 — 1.25Q, where Q represents thousands of units. There are twenty very small firms, who
There are two firms in the prefabricated homes industry producing metal-frame houses. The cost structure of Struktatuff, Inc., is considerably lower than that of its rival, Steeldeal, Inc., although
To demonstrate your understanding of the issues involved, draw the graph for and explain the price and output determination in the three-firm, symmetrically differentiated products case of low-cost
The Prangle Company manufactures and sells several styles of jeans which are branded as the Sizzlers. Several years ago the company introduced the stylized jean look, and Prangle sales increased
Suppose the automobile producers are confronted with an increase of 10 percent in the negoti¬ ated wage for assembly labor, yet prices of their products remain constant.(a) Explain with the aid of
Show graphically the situation in which a purely competitive market suffers a temporary reduc¬ tion in consumer demand. Summarize what happens to(a) The price level.(b) A representative firm’s
What has the magnitude of search costs got to do with the short-run policy of satisficing and with the adequacy of any one of the proxy policies for long-term profit maximization?
In order for oligopolists to practice limit pricing, what behavioral assumptions must be appli¬ cable?
Explain why the objective “sales maximization subject to a minimum profit requirement” may be said to be an operational means of pursuing long-term profit maximization.
What is the connection between the kinked-demand-curve model and the low-cost firm price leadership model?
Why do firms follow the price leadership of another firm? Is it simply fear of the consequences if they do not? Explain.
Discuss conscious parallelism in the context of price leadership and followership. Which firms are leaders and which, if any, are followers? Should the firm expect conscious parallelism if a cost
Why would you expect the price rigidity implications of the kinked-demand-curve model more likely to be observed in practice if the cost changes or demand shifts are firm-specific, rathei than common
Given that an oligopolist envisages a kinked-demand-curve, explain why it is sometimes profit maximizing to raise prices and incur a loss of maiket shaie.
Characterize according to the simple spectrum of market forms the markets in which the follow¬ ing groups of firms operate:(a) Automobile dealerships in a large city.(b) Colleges and universities
In what single dimension does monopolistic competition differ from pure competition? In what dimension(s) does oligopoly differ from both of these?
The Fairway Golf Cart Company entered the American market in 1981 after production began in its Florida plant. Initially, the output rate was low, but it soon picked up as the workers learned their
The Whizbang Electronic Games Company has been producing a particular machine for sale to pinball arcades for about a year. At first its costs per unit were relatively high, but these de¬ clined as
The Autoroller Company is situated near Detroit and specializes in producing ball bearings for the automotive industry. Since its inception in 1970 the company has been supplying both the Michigan
The Done Brown Cookie Company produces high-nutrition "Brownie’’ biscuits which it sells to retailers for $22.55 per carton of 24 packets. Although demand for Brownies is not seasonal, it
The Argus Boat Company manufactures aluminum paddles for use in canoes and small boats. Its demand for this product fluctuates from month to month depending upon orders received. ABC manufactures to
A large new stadium is to be built in your city and contracts are being offered to manufacture certain items. Your company produces molded plastic items and is very interested in obtaining contracts
Every year the Fun in the Sun Vacations company (FSV) places an order with the Brown Bag Company (BBC) for a batch of vinyl flight bags embossed and screen-printed with FSV’s logo and current
The Patches Printing Company has recently expanded its product line to include a set of four- color Christmas and other Seasons Greetings cards. For the past three months it has been build¬ ing up
The Minical Electronics Company produces pocket calculators that are sold to various retail outlets at a price of $20. Minical feels it can sell all it is able to produce at this price. The following
The Rakita Racquets Company restrings tennis racquets, a business with a highly seasonal de¬ mand. The owner-manager, Ian Rakita, has kept a record of the number of racquets restrung and total
Summarize the issues involved in the forecasting of cost levels in an inflationary situation.
If the productivities of all factors are expected to improve by the same proportion in the coming years, does this mean that there should be no factor substitution in future periods? Why or why not?
Discuss the learning curve and the underlying reasons for its shape. What effect does this have on the firm’s SAC curve?
Explain why a linear relationship (with positive intercept and slope terms) between total costs (of different plants) and output levels (of different plants) means that the data exhibit econo¬ mies
Discuss the major problems that may arise in regression analysis of cross-section data to esti¬ mate the long-run average cost curve.
Outline some of the reasons why you might expect raw-material input, labor, and repairs and maintenance not to be simple linear functions of output.
Explain the engineering technique of cost estimation in terms of the production and cost theory of Chapter 6.
Why is it important to test several specifications of the cost function for their significance and goodness of fit?
Why are cross-section data likely to be inappropriate for the estimation of short-run cost func¬ tions?
Explain the dangers inherent in extrapolation of cost levels beyond the limits of the data base.
The Franklin Razor Company is considering the introduction of a new product that will facili¬ tate shaving in the shower. It is considering three alternative quality levels for the product. Produced
For the total revenue curve TR = 45Q and the total cost function TC = 120+ 12.5Q, where Q represents thousands of units, perform the following.(a) Show graphically the breakeven volume. Confirm your
Derive an algebraic expression for the breakeven volume for the case where TR is a quadratic function of output (and TC is linear).
Under what circumstances is it appropriate to show the TR and TC curves as linear functions of output for breakeven analysis purposes?
Derive an expression for the operating leverage of a particular plant, expressed in terms of the percentage changes in the appropriate variables.
Summarize the limitations involved in the use of breakeven analysis.
Discuss the applications of breakeven analysis to business decision making.
The Yankee Jack Company operates a tourist service business in a New England seaside resort area. Wishing to capitalize on the expanding tourist potential of the region, the firm is consid¬ ering

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