Questions and Answers of Managerial Economics 15th

2 In what ways might a company like Nike use a ‘knowledge audit’ as part of its strategy development process?What are the problems with this approach? Would you recommend it?
1 Take an organisation with which you are familiar and identify its areas of explicit and tacit knowledge. To what extent, if at all, does the process assist in identifying the sustainable
3 What lessons can we draw from the case on the usefulness of strategy dynamics and aggressive competitive theory in strategy development?
2 To what extent were aggressive competitive strategies used in the negotiations? What other aspects of strategy dynamics were involved?
1 What are the strengths and weaknesses of using strategy dynamics to plot this strategic battle? Who appeared to be the winners in the negotiations? Why?
9 Take an organisation with which you are familiar and explore the extent to which its current purpose is directed by its stakeholders and governed by ethical considerations. Use Section 2.5 to
Explain and critically evaluate this comment.
8 ‘In turbulent environments, the speed at which changes develop is such that firms which use the emerging strategy formation advocated by Mintzberg endanger their own survival. When they arrive on
7 ‘When well-managed major organisations make significant changes in strategy, the approaches they use frequently bear little resemblance to the rational–analytical systems so often touted in the
6 If you were asked to develop strategy for the following companies, which strategic management theory might you pick as a starting point for your assessment? A large, international car company; an
5 Take an organisation with which you are familiar. Analyse whether it has been following prescriptive or emergent strategies or both. Within these broad categories, how would you characterise its
4 What predictions would you make for the environment over the next ten years? What influence will your predictions have on developments in strategic management over this period?
3 Consider the four emergent approaches to strategy outlined in Section 2.4 . Which would you judge most closely described the route taken by Cereal Partners in Case 2.1 ?What conclusions do you draw
2 Examine the criticisms of prescriptive strategies in Section 2.1 and those of emergent strategies in Section 2.2 . To what extent, if at all, do you agree with them? Why?
1 Is it possible for organisations to follow both prescriptive and emergent strategies or do they need to choose?
3 Are there any more general lessons to be drawn for companies from the approach to expansion from Africa’s leading mobile telephone companies?
2 What are the risks and benefits of African companies expanding beyond their home countries? What are the dangers of having a competitive advantage that relies largely on brand and geographical
1 Where would you place the strategies of MTN and other African phone companies – prescriptive or emergent? And within this, which strategic theory represents the most appropriate explanation of
(d) Compute the firm’s total wage bill.
(c) Compute the first-order condition from the union’s maximization problem. Use the demand curve and the first-order condition to solve for the wage and level of employment at the firm.
(b) Using this expression, write down the union’s maximization problem assuming the union maximizes the wage differential times the number of employed union members.
(a) Write down an algebraic expression for the wage differential times the number of employed union members.
5 Suppose a union has so much bargaining power over a firm that the union can set any wage it wants. In addition, suppose the union membership has collectively decided that their objective should be
(d) Compute the firm’s total wage bill.
(c) Compute the first-order condition from the union’s maximization problem. Use the demand curve and the first-order condition to solve for the wage and level of employment at the firm.
(b) Using this expression for the wage bill, write down the union’s maximization problem assuming the union maximizes the firm’s wage bill.
(a) Write down an algebraic expression for the firm’s total wage bill.
4 Suppose a union has so much bargaining power over a firm that the union can set any wage it wants. In addition, suppose the union membership has collectively decided that their objective should be
(d) Compare the solutions from the two sets of bargaining costs. What feature of the Rubinstein model have you illustrated? Explain.
(c) Now suppose that the delay costs fall to 100 for the firm only, i.e. CF =100, while the delay costs for the union remain unchanged at 200.Sketch the bargaining diagram and compute the Rubinstein
(b) Assuming the union makes the first offer, compute the Rubinstein solution to this bargaining problem.
(a) Sketch the bargaining game, showing the bargaining frontier, the effects of delay, and the disagreement point.
3 Suppose the bargaining frontier in firm-union contract negotiations is given by:where U is the union’s utility and π is the firm’s profit. Let the delay cost to the union be 200, i.e. CU = 200
(d) Compare the solutions from the two sets of bargaining costs. What feature of the Rubinstein model have you illustrated? Explain.
(c) Now suppose that delay costs fall to 50 for the union and the firm, i.e.CU = CF = 50. Sketch the bargaining diagram and compute the Rubinstein solution to the game.
(b) Assuming the firm makes the first offer, compute the Rubinstein solution to this bargaining problem.
(a) Sketch the bargaining game, showing the bargaining frontier, the effects of delay, and the disagreement point.
2 Suppose the bargaining frontier in a firm-union contract negotiation is given by:where U is the union’s utility and π is the firm’s profit. Let the delay cost to the union be 100, i.e. CU =
(e) Is there a first-offer advantage in this game?
(c) If the union makes the first offer, what is the Rubinstein solution to the bargaining problem?(d) If the firm makes the first offer, what is the Rubinstein solution to the bargaining problem?
(b) On the same diagram, sketch the bargaining frontier after a one-period delay. Again, indicate the horizontal and vertical intercepts on the diagram.
(a) Sketch the bargaining frontier on a diagram with U on the vertical andπ on the horizontal axis. Indicate the horizontal and vertical intercepts of the frontier.
1 Suppose the bargaining frontier is given by the following equation:where U is the union’s utility and π is the firm’s profit. Let the delay cost to the union be 10, i.e. CU = 10 and the delay
(d) What do economists call the wage you have determined?
(c) Based on your calculations, what wage do you think the firm should adopt? Explain.
(b) Compute the percentage wage changes and corresponding percentage output increases for the wage pairs $10.00 and $11.25, $11.25 and$12.00, and $12.00 and $12.50.
(a) Calculate the percentage change in the wage and the corresponding percentage change in output as the wage is increased from $8.00 to$10.00. Given that all other inputs at the firm are fixed,
7) A study by an economics consulting firm finds the following relationship between wages and output at a small firm hiring a fixed number of workers.Wage rate ($) Units of output 8.00 60 10.00 80
6 Suppose the value of marginal product for all workers in a firm is $20 per hour. Shirking is a major problem in the firm, so the manager of the firm proposes to institute a scheme of deferred
(c) The worker is paid less in her first year at the job than her market value. Why do you think a worker would opt for such an arrangement?
(b) Using this condition, calculate the wage the worker will be paid in the second year of the job.
(a) What condition must be true in order for the firm not to overpay or underpay the worker during her tenure at the firm?
5 Suppose that a worker is expected to stay with a firm for two years. The worker’s value of marginal product is $20,000 in the first year, rising to$25,000 in the second year owing to experience
(e) What potentially important aspect of the manager’s pay does this compensation scheme ignore? Explain.
(d) Assuming the pay scheme takes the form of a fixed payment P to the owner with all residual revenues from the business going to the manager, calculate the value of P.
(c) Assuming for the moment that the owner can observe the amount of shirking, derive the profit-maximizing hours of shirking at the business.
(b) Derive the pay constraint for the small business. What does the pay constraint represent?
(a) Derive the revenue function of the small business.
4 Suppose the owner of a small business is considering hiring a manager and has decided to opt for a performance-based scheme for the manager’s pay. Suppose a manager’s utility function is given
(c) Does the present value of the benefit from training exceed the present value of the cost?(d) Suppose the interest rate rises 15 percent. Will the training still be undertaken? Explain.
(b) Determine the worker’s wage in the second year.
(a) Determine the worker’s wage in the first year.
3 Suppose that the value of marginal product of an untrained worker is$20,000 per year and that one year of worker training raises productivity by 20 percent. Suppose training costs are $3,500 and
(c) Because the firm can exceed the present value of the cost?
(b) Determine the worker’s wage in the second year.
(a) Determine the worker’s wage in the first year.
2 Suppose that the value of marginal product of an untrained worker is$25,000 per year. One year of worker training costs $12,500 and raises the worker’s value of marginal product to $50,000.
1 In each of the following cases, state whether the case is an example of general or specific training and give a brief explanation.(a) A Bachelor of Arts in Economics.(b) Flight training on a Boeing
(c) Determine the new equilibrium wage in the labor market. Why do you think the wage does not rise by the full $10 required to compensate workers to work in these jobs?
(b) Now suppose that a new study reveals that the work has previously unknown harmful health effects to the extent that each worker now requires a compensating differential of $10 in order to work in
(a) Determine the equilibrium wage and level of employment in the labor market.
6 Suppose that the (inverse) demand for labor in a competitive market is given by:(and (inverse) labor supply is given by:
What is the intuition behind your answer? (Hint: compute the elasticities of demand and supply at the pre-tax equilibrium.)
(d) Explain why the group that bears the higher burden of the tax does so.
(c) Compare the workers wage before the payroll tax to the wage they receive after the tax is imposed. Likewise, compare the wage firms paid before the tax to the wage they pay after the tax is
(b) Suppose a payroll tax of 25 percent is introduced. Determine the equation of the labor demand curve incorporating the tax. Hence, determine the wage paid by the firms, the wage received by the
(a) Determine the equilibrium wage and level of employment in the labor market.
5 Suppose that the (inverse) demand for labor in a competitive market is given by:(and that the supply of labor is given by:
4 Suppose 100 firms in a labor market all have an identical short run production function given by f(L) = 4L1/2, and that the price of output is p= 100. Determine the market labor demand curve. If
3 If a firm’s short-run production function is f(L) = 2L1/2, the price of output is p = 1,000, and the market wage of workers is w = 100, determine the profit-maximizing number of workers the firm
(b) Assuming that the cost of the fixed inputs is $40 per day, calculate the firm’s total daily profit.
(a) Determine the profit-maximizing hours of labor input the firm hires per day and, hence, the firm’s total daily output.
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

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