Questions and Answers of Managerial Economics 15th

The Thompson Textile Company has asked you for advice about the optimality of its pricing policy with respect to one of its products, product X. The following data are supplied:(a) Is the present
The Gutowski Grocery Company markets a brand of a particular food item for which there are a number of reasonably similar substitutes. The company has been subject to a series of cost increases
The Belcher Brewing Company has undertaken market research for the purpose of ascertaining the responsiveness of consumers to changes in the price level for their premium beer. Analysis of the
The demand function for Crispie Chips has been estimated to be as follows:where Qx represents thousands of packets of chipsS*4x is thousands of advertising dollars; Ps is the average price of
The demand function for Fritz Reinhart premium beer has been estimated as Qx = 2,486.5 — 1,931.6.?, + 283.9Py + 168.2A, - 18.8A where Qx is the demand for the Reinhart beer (in cases); Px is the
Billabong Boomerangs, Inc., and Swahili Spears are direct competitors in the fast-growing seg¬ ment of the hunters’ equipment market. Because of recent intense competition, both companies have
The Silverstein Coffee Company faces the following demand schedule in the relevant price range for one of its products.(a) Plot the associated demand curve, marginal revenue curve, and total revenue
Define the “rainfall elasticity” of demand for umbrellas, using your knowledge of the elasticity concept. What possible usefulness could such an elasticity have?
How would you explain a situation in which two products have both a positive cross-price elas¬ ticity of demand and a positive cross-advertising elasticity of demand?
Explain why you would expect the demand for luxury goods such as fur coats and jewelry to be more volatile in periods of fluctuating incomes as compared with items such as groceries and meat.
Explain how you would derive the demand curve for a particular product X, given the informa¬ tion that Px — $4.50; Qx = 25; and price elasticity of demand is —1.5.
Classify the probable price elasticity value of the following products as either “relatively high” or “relatively low”:(a) soft drinks(b) Coca-Cola(c) Diet Pepsi(d) compact automobiles(e)
Explain how you could calculate the price elasticity at any particular price if you know the parameter values in the mathematical expression for a particular demand curve.
Summarize the methodological error and the resultant overestimate or underestimate that is involved when the point elasticity formula is used to calculate elasticity from observations of discrete
Set up a matrix with |e| > 1, |e| = 1, |e| < 1 down the left-hand side and “TR increases” and “TR decreases” along the top. Fill in the six parts of the matrix to indicate whether the
What is the relationship between the coefficient of price in the demand function and the slope term in the demand curve? Explain.
Which factors do you think should be held constant in a discussion about the demand curve for season tickets to the home games of a National Football League team?
The demand for telephone installation peaks around the first day of each month, since many subscribers request service on that day because they are moving to a new house or apartment. I he Tanguay
Richard Poirier has recently graduated from college, and upon receipt of his first paycheck he began planning to buy a sports car. He is considering four major attributes: prestige, perfor¬ mance,
One of the domestic auto manufacturers (which we shall call company D) is considering some strategic changes to its “luxury-subcompact” model. Its research indicates that consumers con¬ sider
The MacFarlane Chocolate Company has a product called Snackers in the health-food segment of the candy bar market. Each Snackers bar contains 150 grams of protein and 150 calories. The two rival
In a western region two brands of beer are sold which between them share almost all the market. Through careful research it has been found that their main differences are perceived to be in the
In the automobile market, various segments of the market are catered to by the manufacturers.Show graphically why three different consumers might choose three different automobiles in the simple case
Imagine two consumers—Mr. A, who simply appreciates classical music, and Ms. B, who is wildly enthusiastic about it. Suppose that in a simple two-product situation both buy classical music records
Company A sells product X, which has several close substitutes. At its present price, however, it is not making a sufficient contribution to the firm’s profitability. A price rise is contemplated.
Explain why the ceteris paribus assumption is so important in the economic analysis of con¬ sumer behavior? Then, using graphs, show the effects of the following series of events: a price reduction
Show graphically the effect of a price increase on the quantity demanded of a product by a particular consumer. Verbally explain the income and substitution effects of this price change.
How would new-product policy benefit from an analysis of the attributes demanded by con¬ sumers in the overall market for several substitute products?
Distinguish between a change in consumer perceptions and a change in consumer tastes.
Why would a consumer not be acting “rationally” in purchasing a product that fell short of the efficiency frontier in attribute space?
What attributes do you think are being sought by a consumer who chooses to fly somewhere for a holiday as compared with another consumer who would drive the same distance for the same holiday?
How would the indifference map between X and Y look different for a consumer who regards X as a normal good (or attribute) as compared with another who regards X as an inferior product (or attribute)?
In the self-service versus full-service gasoline example used in the text, how would the indiffer¬ ence map of a person who is knowledgeable about preventive maintenance, economy-minded, and not
Show how a change in the consumer’s tastes and preference pattern will cause a change in the quantity demanded of any two products, using first the product approach and then the attribute approach.
Demonstrate that an increase in a consumer’s income could lead to either an increase or a decrease in the consumption of a particular product, using first the product approach and then the
Explain how the MRS, at a particular combination of the two products, would differ between two consumers—one who “likes” hamburgers and “loves” milkshakes and another who “loves”
Explain the diminishing marginal rate of substitution between two products in terms of the marginal utilities of those products.
Houston Homewares has suffered a declining market share over the past year, and management has considered various means of reversing the trend. Extensive analysis has narrowed the op¬ tions to
The Venture Startup Company (VESCO) solicits capital from investors and uses this capital to start new business ventures. It pays 14 percent on the capital it borrows, and invests in new ventures
The Walwyn Widgets Company operates a thriving mail-order business and has achieved con¬ siderable success using television advertisements to promote new products, novelty items, record and tape
Noble Neckties is considering investing in another machine to produce neckties. It is consider¬ ing the joint decision of the price and quality of the single type of necktie it will market. Three
Your firm is considering the introduction of a new product, and you are required to set the price. You are considering three price strategies: high ($6), medium ($4), and low ($2.50). Your market
The Keene Construction and Real Estate Development Company buys tracts of land, builds residential home units on the land, and sells them to home buyers. Keene is currently consider¬ ing the
The Express Delivery Company operates a courier and parcel delivery service between the major cities in southern California. Management is considering whether to lease or buy an additional truck it
Safeguard Stores is a relatively small chain operation in the retail supermarket industry. The area manager for Montreal, Nick Wolkowski, is considering opening a new store in a rapidly expanding
To help pay your way through college you plan to operate either a hot-dog stand or an ice-cream stand at every home game of your local baseball team. The actual outcomes associated with each decision
Sounds True, Inc., a small company producing stereo amplifiers, has found that its leading model has suffered substantial market-share losses because of the competition from other producers’ newer
What is sensitivity analysis? How would you incorporate this into your recommendation to man¬ agement concerning the choice between several decision alternatives?
Discuss the factors you would consider when evaluating a decision made by somebody else. Is it possible that you might conclude that it was a “good” decision even if the actual outcome was a
Explain how the value of additional information is calculated.
In some cases the coefficient-of-variation criterion ranks decision alternatives in a different or¬ der, as compared to their ranking by the certainty-equivalent criterion. Explain.
The product manager of a large company has had a series of disastrous new-product offerings. He fears that another failure will cost him his job. He is currently trying to make up his mind between
Go through the thought process of determining your own certainty equivalent for a fifty-cent lottery ticket that is one of 100,000 sold for a $10,000 prize.(a) What is the expected value of the
Demonstrate that the investor’s degree of risk aversion (or preference) is an important element in determining his or her choice among investment alternatives.
Explain why a risk preferrer might prefer a high-risk, low-stakes gamble to a low-risk, high- stakes gamble. Are you a risk averter, a risk preferrer, or are you risk indifferent? How do you know?
Define risk aversion. Does a risk averter refuse to take risks? Will a risk averter ever select the more risky alternative? Explain.
Define risk and uncertainty. How do we measure risk and uncertainty? Can you think of any other, more appropriate, measure of risk and uncertainty?
The manager of the Fearless Ambition Racing Team is faced with the following decision prob¬ lem: There is one race left in the series, and his driver could win the championship with a win or a
The Oxford Equipment Company has decided that it will “computerize” its inventory, billing, payroll, and so on. It has two choices. First, it could buy a computer, several terminals, and a
Your firm is considering diversification into a new product line. After extensive investigation the two most promising possibilities have been isolated. Product A is a line of personalized
The Swiss Crest Embroidery Company is considering the installation of a computerized loom, which would be substantially more efficient than their existing equipment. They have two op¬ tions. Machine
You are reading the “Businesses for Sale” advertisements and notice a corner-store business offered for sale. Its assets comprise inventory of $50,000, equipment and plant of $80,000, and land
The owner of a restaurant approaches you and offers you the following deal: You would manage his restaurant for two years while he goes back to his country to do his compulsory military service. He
Doreen Delights has invented a device that allows drinking drivers to self-test for excessive alco¬ hol in their system. Rather than get into that business itself, the firm plans to license this
Your firm has called for bids for the fabrication and installation of a pollution-control system tailored specifically to meet the legal requirements applicable to your manufacturing process. The
The Words-Are-Cheap Publishing Company is considering extending a contract offer to an au¬ thor who has written a book entitled How to Deal with High Interest Rates in the Mid-1980s. This project
A large internationally recognized manufacturer of soft drink products has announced it will establish a foundation to provide scholarships to business students at your university. The com¬ pany
Briefly outline the “principal-agent” problem and what it might mean for the achievement of the firm’s objectives.
Summarize the modifications necessary to the firm’s objective function as the firm’s time hori¬ zon shifts from the present to a future period and as we relax the assumption of full infor¬
Explain the notion of uncertainty in terms of the probability distribution of outcomes associated with each decision alternative.
What is a decision problem? Is it necessarily a situation in which there is a crisis or in which remedial action is necessary? What has the firm’s objective function to do with the existence (or
Which discounting formula should be used to most accurately calculate the present value of a stream of revenues received each week throughout the year? If, instead, you used daily discount factors,
What determines the opportunity discount rate to be used when evaluating the present value of a multiperiod profit stream?
What is the firm’s time horizon? What kinds of considerations determine the firm’s time horizon?
What advantages are there in the graphical or algebraic representation of a model, as compared with a verbal representation of the same phenomena?
Under what circumstances is it appropriate that a model be based on assumptions that are extremely simplistic? Could it, nevertheless, be a good model? Could a model be based on false assumptions and
Distinguish between certainty, and risk and uncertainty.
8 Devise a strategic plan for an organisation with which you are familiar and identify the main elements that you would control during the period of the plan. Consider whether you yourself can be
3 Apply the basic implementation process outlined in Figure 13.1 to the current procedures of an organisation with which you are familiar. Where does it differ and where is it the same? What
8 The managing director of a large company making bicycles has become worried by the lack of growth in sales, believing the company has lost its earlier innovative spark, and has turned to you for
5 ‘Every organisation needs an element of innovation’(see Section 12.5 ). Is this correct?6 ‘All any company has to do to explore its own potential to become a more innovatory organisation is
3 ‘If structure does follow strategy, why should there be a delay in developing the new organisation needed to meet the administrative demands of the new strategy?’ (Alfred Chandler) How would
2 What structure would you expect the following organisations to have?(a) A small management consultancy company based in one country only.(b) A voluntary group providing volunteers to visit the
3 Take an organisation with which you are familiar and consider to what extent it plans ahead. How does it undertake this task? Is it reasonably effective or is the whole process largely a waste of
1 Charles Handy has described recent technological breakthroughs in global development as discontinuous.He commented that ‘Discontinuous change required discontinuous upside-down thinking to deal
1 If you were moving into the market for internet travel as a small company, which, if any, of the five routes described in this chapter would you employ? You can also consider the use of classic
10 ‘Most firms rarely engage in explicit formal strategy evaluation . . . rather, it is a continuing process that is difficult to separate from normal planning, reporting and control.’ (Richard
9 ‘Merger and acquisition is the most common means of entry into new markets.’ ( John Kay) What is the evidence of success from such ventures? What are the strategic implications of your answer
8 With regard to new, fast-growing markets such as that for mobile telephones, the ADL matrix would suggest that weak and dominant companies face quite different strategic opportunities and problems.
7 A well-known German company is primarily engaged in supplying motor components such as car radios and gear boxes to car companies in the EU, such as Ford and Toyota. It is considering acquiring a
6 ‘Strategy evaluation is an attempt to look beyond the obvious facts regarding the short-term health of a business and appraise instead those more fundamental factors and trends that govern
3 Japanese companies have tended to favour payback criteria while US/UK companies have been more inclined to use DCF criteria in evaluating strategic options.What are the merits of the two
2 If you were developing strategy for a small company with 50 employees and a turnover of around $5 million, would you use all the selection criteria outlined in Section 10.1 or would you select only
1 Using Section 10.1 , what criteria would you consider were particularly important if you were evaluating strategy options in the following organisations: a small chain of petrol stations; a large
4 Which option, if any, would you recommend to Eurofreeze?Give reasons for your choice and explain the strengths and weaknesses of your choice.
3 Consider what other strategic analytical tools, if any, might provide useful insights into the strategic choice debate:you might wish to consider a PESTEL analysis, a Five Forces Analysis, generic
2 In what way does the use of the portfolio matrix help the strategic debate? And in what way might it mislead the strategic decisions?
1 What are the relative merits and problems of each option?
3 What strategy lessons can we learn from a market where the barriers to entry are low and the fixed costs are high for the market leaders?
2 Why has Nestlé adopted the strategy of attempting to take a large market share? Do you think that this is viable? What alternative strategies could Nestlé have adopted?

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