Questions and Answers of Managerial Economics 15th

The Wyndham Wool Company is considering two alternative strategies to increase its profitabil¬ ity and net worth. Strategy A is to set up a string of retail outlets for exclusive distribution of
You are the manager of a ski resort. Based on industry projections of this season’s demand, your competitive position, and your estimates of costs, you have set the lift ticket price at $8 per day.
The Tico Taco Company has estimated the following total variable cost function from cost and output data pairs observed over the past ten weeks:TVC = 435.85 - 1.835Q2 + 3.658Q3 where TVC represents
Corcoran Calculators Incorporated is one of the leading manufacturers in the electronic calcu¬ lator industry. Management is now considering plans for the production of the company’s latest
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
The XYZ Company produces and sells a product directly to consumers at a price of $6 per unit. Sales have been increasing at 10 percent per month, and this trend is expected to continue. Average
Commodore Candies produces a three-pound box of chocolates which it sells at a price of $6.75 to various retail outlets. Commodore’s output capacity for this product is 10,000 units per month with
The Crombie Castings Company produces two products, A and B, for which pertinent data are as follows for the past month:CCC’s plant and labor are operating at full capacity, but the company is
The Muscle-Man Company manufactures forklift tractors, and it supplies some parts to other manufacturers of forklifts. It fabricates most of the component parts but buys the engines, hydraulic
Explain and contrast the concepts of opportunity costs and opportunity revenues.
Explain how you would calculate the incremental cost of a decision that might lead to a future class-action lawsuit by consumers for damages caused by your product.
In multiperiod contribution analysis, what determines the choice of the appropriate discount factors?
How should future considerations be evaluated and included in contribution analysis?
Why does contribution analysis ignore the fixed overhead costs that might otherwise be in¬ cluded in the cost analysis of a decision?
Define the relevant costs for decision making. When do the relevant costs include some ele¬ ments of fixed costs?
Explain the economist’s notions of normal and pure profits. Why wouldn’t a firm wish to liqui¬ date its investment and leave the industry if it was simply breaking even with TR = TC?
When is the opportunity cost of an input to the production process equal to zero? If an input has several different alternative uses, how is the opportunity cost of that input determined?
Explain how the economist would calculate the implicit cost of a fixed factor, such as plant and equipment, which is used in the production process.
How might the accountant’s calculation of indirect costs differ from the economist’s calculation of fixed costs?
The RM.D. Light Company produces and sells three standing lamps. The contribution to over¬ head and profit for these lamps is constant at the following levels regardless of output level: model A,
Corpulent Foods, Inc., wishes to minimize the ingredient cost of its Krunchy-Karamel choco¬ late bar. This chocolate bar has become its major seller over the past year, but increasing costs have
The Grimes Gravel Company produces three mixtures of sand, pebbles, and rocks for eventual sale in 20-kg bags to the home handyperson for use in cement work. The sandy mixture is composed of 10 kg
The Munchies Cake Company wishes to minimize the materials cost for its “Jumbo” fruit-and- nut cakes. The company has found that market acceptance of these cakes is maximized when they contain at
Frank’s Fish Packing Company produces two items, fish cakes (for human consumption) and fish meal (for animal consumption). The light-meat parts of the fish are separated from the rest of the fish
Outline the relationship between the primal problem and its dual problem in linear-program¬ ming analysis.
What should the decision maker do after having ascertained the shadow prices of each con¬ straint?
What happens to the shape of the feasible region if a production process suddenly becomes more efficient in terms of the output of one product?
Outline the process involved in the algebraic solution of the linear-programming problem. Why are we able to confine our attention to the corner solutions?
For algebraic solution of the linear-programming problem, we insert slack variables in order to express the constraints as equalities. Why?
What is the logic behind changing the inequality to an equality in order to depict each con¬ straint graphically?
If a firm produces two products, both of which make exactly the same demands on resources and contribute the same to profits, how is the optimal product mix determined?
Why is linear programming a technique suitable for short-run production problems rather than for long-run production problems?
When would a constraint line be horizontal or vertical in the graphical approach to linear pro¬ gramming analysis?
Outline the features necessary to make a problem suitable for solution by linear-programming analysis.
The Vermont Maple Syrup Company has estimated the relationship between its inputs of fixed and variable inputs and the resultant output level, over the range shown in the following table. The units
1 he long-run production function for the Burnstein Apparel Company is represented by the following input-output table. Capital units cost $100,000 each, and labor units cost $50,000 each. The firm
The Himam Foods Corporation is a relatively small firm producing grocery items. Recently its research department developed a new salad dressing. Production of this new dressing would involve the use
Why would you expect the production of any particular product to be typically more capital intensive in more highly developed countries, as compared to less developed countries?
What is the rule for the optimal input combination? State this rule verbally, and then symboli¬ cally. Generalize it to the n input case.
Why do isoquant curves bend back at relatively high and relatively low capital-labor ratios?
The smooth curve of an isoquant curve implies the ability to substitute small amounts of capital for small amounts of labor. Given that a person is not physically divisible, how can the firm use a
Distinguish between technical and economic efficiency in the production process.
Magnocrunch Computer Company is currently producing at full capacity. This firm is fortunate to have fully divisible fixed inputs, such that its average variable cost is constant out to the full
Paxtronix Corporation is considering the installation of plant and equipment to manufacture a nonlethal stun gun for use by law enforcement agencies only. It has a choice of three plant sizes, A, B,
Suppose that one of the very expensive ingredients in Peachy Cream (see problem 6-7) was suddenly found in abundance, and the cost of the variable units fell to $500 each.(a) What is the impact of
The Peachy Cosmetics Company has established the following relationship between the variable inputs and the output level for its production of its face cream products. Each unit of the vari¬ able
The newly formed Beaudry Automobile Corporation plans to produce an expensive sports car and has asked your consulting firm for advice on the size of plant to construct. Because of the union contract
Gewurz Fabricators Limited manufactures and assembles small aluminum buildings suitable for garden toolsheds, garages, and children’s playhouses. Stephen Gewurz, the owner, is consid¬ ering
Silver Star Corporation has estimated its production function as follows:Q = 38.6K + 3.2/C2 - 1.8K3 + 16.31 + 2.8L2 - 0.85V where K represents units of the capital input (in $1,000 units) and L
The Superhealth Exercise Company has estimated its short-run production function to be as follows:Q = 421 + 0.6/,2 - 0.08T3 where Q represents output per hour and L represents units of the variable
Taras Panache is the owner-manager of Panache Shirts Enterprises, which manufactures shirts by using rented space and equipment in a large warehouse. Because of the technical aspects of shirt
Donald K. Brown and Company operates a pearl-diving operation in the North Pacific Ocean. Mr. Brown owns a large trawler with all the required equipment. He hires local divers from the nearby islands
Distinguish between economies of scale, economies of plant size, and economies of firm size. Under what conditions would a firm’s expansion be an example of all three phenomena at once?
Explain the construction of the long-run average cost curve and its relationship with the long- run marginal cost curve and the various short-run average cost curves.
Distinguish between full capacity, absolute full capacity, overfull capacity, and excess capacity.
Why would it be erroneous, when demand is uncertain, to choose plant size on the basis of the average cost level at the expected value of demand? What is the correct approach?
Discuss three ways that the firm may stabilize its costs per unit in the short run, rather than be forced to produce at varying levels of marginal cost.
Explain why the shape of the short-run average variable cost curve depends on the specific form of the production function.
Why is the point of inflection on the total product curve the point where diminishing returns begin?
How does the law of variable proportions differ from the law of diminishing returns?
Suppose your production process has three inputs—machinery, highly skilled labor, and raw materials. If you wanted a new (larger or smaller) machine, it would take six months to be fabricated,
Explain how a tabular representation of a production function represents both the long-run and the short-run situations at the same time.
The Four Squares Company has used exponential smoothing as a forecasting technique for several years and has established the optimal “weight” to be 0.85. The company’s forecast value for sales
Hubert Hockey Equipment faces cyclical, seasonal, and irregular variations in the trend for its hockey sticks. It has generated the following regression equation of past quantity demanded
The demand for stereo and video equipment repair depends on breakdowns occurring, and thus the demand for Ace Electronic Service (AES) varies unexpectedly from month to month. This variability
Halley Appliances has determined that quarterly sales of their household appliances depend on changes in consumers’ incomes, the general price level, and the rate of interest. (Halley always sets
A large cosmetics company markets its products directly to customers in eighteen separate cam¬ paigns annually. Sales brochures are prepared and printed for each campaign and are sold to the sales
The Johnston Raymond Corporation has established a “composite index of demand” which has been relatively accurate in predicting the annual quantity demanded of its cement products. A number of
The Leiberman Plastics Company wishes to predict sales for its plastic pails for the 1987 year. It has recorded data for its past ten years’ demand and has obtained data on the number of house¬
Outline how you might generate a demand forecast for a particular product group, such as for automobiles.
Why is the use of a composite leading index usually preferable to a single leading index? What is the advantage of a diffusion index?
What are leading indicators? Name several, and speculate as to why they are leading indicators.
Explain how a time series may be decomposed into its four components and how a forecast value for the next period may be arrived at.
Explain how the forecaster would arrive at the weight to be used in an exponential smoothing model.
What are the advantages of exponential smoothing models over weighted average forecasting models?
When is a moving average forecast likely to be better than the simple projection of the current period value plus a trend factor?
Distinguish between causal forecasting models and time series forecasting models. How can a complex model be naive?
The demand function for Blitz brand economy beer at a major suburban supermarket has been estimated, using regression analysis, to bewhere Qx represents the number of cases of Blitz sold per week; Px
The demand function for compact Hertz rental cars at Boston’s Logan Airport has been esti¬ mated, using regression analysis, to bewhere (a) What are the cross elasticities of demand between
The Jumping Jack Flash Company has developed a new lightweight camera with an automati¬ cally triggered flash which (naturally) pops up and flashes just as you press the shutter-release button. This
The demand function for product X has been established, using regression analysis, as follows:where Px, Pv, P, and Pw are the prices of products each identified by the subscript. The current price
Ambivalent Autronics has commissioned a study to quantify the determinants of the demand for its cruise-control device. This device is installed in an automobile to allow the vehicle to maintain a
The Lifestyle Leisure Company produces and sells hot tubs for the southern California market. It has recently been varying the price of its best-selling unit and observing the quantity sold at each
Wido Heck, manager of the Red Baron Flying School, is wondering how many instructional hours will be demanded during the coming season. He needs to have an estimate of demand in order to hire
The Karich Electronics Corporation manufactures stereo equipment and has recently devel¬ oped a distinctly new-looking stereo receiver. As a result of surveying several thousand people about their
The Direct Deal Marketing Company operates a mail and telephone order business, selling products directly to consumers who order DDMC’s products after seeing advertisements in magazines or after
Jose Hermanos Liquors has conducted a simulated market experiment aimed at finding the price that would maximize total revenue from the sale of one item in its product line, namely Hermanos Gold
Summarize the issues you would need to check before concluding that the results of a regression analysis were a reliable basis for estimating the demand function.
Explain how you would satisfy yourself that your analysis did not contain any specification er¬ rors.
Explain the importance of the assumptions concerning the residuals, or error terms, to the accuracy of the estimate of the demand function derived using regression analysis.
Suppose you had data on the annual quantity demanded of newsprint and the price per ton of newsprint over the past twenty years and that you had found the regression equation relating quantity
What factors must be monitored while conducting a direct market experiment in order to allow confidence that the results obtained give reliable information about the demand function?
Design a simulated market situation intended to ascertain customers’ responses to changes in prices, packaging, and point-of-purchase promotion for a particular product.
Suppose you were to interview a large number of people, asking each person whether he or she would buy a particular product at a series of prices starting from a relatively low price and then raising
List ten questions you would ask a sample of people in order to estimate their demand function for a specific brand of toothpaste.
List the problem areas that one must be cautious about when using interviews and surveys to derive estimates of the market demand function for a particular product.
Why is it useful to the decision maker to have an estimate of the impact (on the quantity de¬ manded) of variables that are not controllable by the decision maker?
The Alpha Beta Company produces and sells toaster ovens. Mr. Learmonth has just been ap¬ pointed marketing vice-president and is determined to be the first VP to guide the company past the
Paul McLaughlin recently purchased the MFF Company, a large company that specializes in the manufacture of minifreezers. Mr. McLaughlin has a reputation for revitalizing companies and reselling them,
The Bustraen Company is one of five firms that manufacture washing machines. The five firms are all about the same size, have approximately equal market shares, and produce very similar products.

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