Questions and Answers of Managerial Economics And Strategy

5.3 Jose eats a churro only with hot chocolate and he puts two spoons of hot chocolate on each churro. He does not consume either churro or hot chocolate alone(churros and hot chocolate are
5.2 Draw diagrams similar to Figure 4.12 but with different shape indifference curves to show that as the price of tracks rises, the amount of live music Jack will buy may rise or fall.
5.1 Some of the largest import tariffs (taxes on only imported goods) are on shoes. Strangely, the tariff is higher on cheaper shoes. The highest U.S. tariff, 67%, is on a pair of $3 canvas sneakers,
4.9 Based on panel a in Figure 4.10, show that Angela would accept the BOGOF promotion or the halfprice promotion. Show that she may choose to stay either three or four nights with the half-price
4.8 Your local gym charges nonmembers €20 per visit. If you join the gym, you can use all their equipment and exercise for €10 per visit, but you have to pay an annual fee of F. Use an
4.7 Since 2013, China has charged import duties on goods purchased from foreign Web sites. The duties varied depending on the products. For example, a 50%duty was levied on cosmetics, but a duty of
4.6 Sylvia usually buys one croissant and one cup of coffee from the local cafe. The cafe announces a special deal: all croissants after the first one have a discount of 25%. Show the original and
4.5 Suppose we change Q&A 4.4 so that Max and Bob have indifference curves that are convex to the origin. Use a figure to discuss how the different slopes of their budget lines affect the choices
*4.4 Gasoline is typically less expensive in the United States than across the border in Canada, but now suppose that the U.S. gasoline price rises above that in Canada due to a change in taxes. How
4.3 Lucas chooses between water and all other goods.If he spends all his money on water, he can buy 15 thousand gallons per week. At current prices, his optimal bundle is e1, where he buys both types
*4.2 Jose likes sushi, S, and ice cream, C. His utility function is U = S2C. His marginal utilities are MUS = 2SC and MUC = S2. His weekly income is€60, which he spends on sushi and ice cream
4.1 Linda loves buying shoes and going out to dance.Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is U(S, T) = 2ST, so MUS = 2T and MUT = 2S.It
3.5 Robert spends all his money on chocolate bars and music downloads. Each bar of chocolate costs £2 and each music download costs £0.80. His parents give him an allowance of £80 and two
*3.4 Dale goes to the opera and ice hockey games. Draw a budget line for Dale. If the government imposes a 25% income tax on her, what happens to her budget line and opportunity set? (Hint: See Q&A
3.2 If the budget line is Y = 120 = pBB + pZZ =4B + 12Z, what is the marginal rate of transformation(MRT) between B (burritos) and Z (pizza)?
3.1 Yuka consumes mangos and oranges. She is given four mangos and three oranges. She can buy or sell mangos for $2 each. Similarly, she can buy or sell an orange for $1. If Yuka has no other source
*2.4 Ahmed purchases only two goods, mangoes (M) and coconuts (C). He has an income of $100 and can buy one mango for $10 and one coconut for $5. His utility function is U(M, C) = 5M + 2C; that is,
2.3 Michael consumes cans of tuna, T, and boxes of biscuits, B. Each of his indifference curves reflects strictly diminishing marginal rates of substitution.If T = 2 and B = 5, his marginal rate of
2.2 If Mia views two cups of tea as a perfect substitute for one cup of coffee and vice versa, what is her marginal rate of substitution between tea and coffee?
*2.1 Melanie eats toast only with jelly and consumes jelly only with toast. She puts one spoon of jelly on two pieces of toast. Show her preference map. What is her utility function?
1.5 Give as many reasons as you can why we believe that indifference curves are convex to the origin.
1.4 Which of the following pairs of goods are complements and which are substitutes? Are the goods that are substitutes likely to be perfect substitutes for some or all consumers?a. A popular novel
1.3 Show that an indifference curvea. Cannot be thick (cannot have positive thickness, rather than being just a line).b. Cannot bend backward (forming a “hook” at the end).
*1.2 Arthur spends his income on bread and chocolate.He views chocolate as a good but is neutral about bread, in that he doesn’t care if he consumes it or not. Draw his indifference curve map.
1.1 Give as many reasons as you can why we believe that economists assume that the more-is-better property holds, and explain how these explanations relate to the results in the Mini-Case “You
4. Explain the role of behavioral biases in consumer choice.
3. Derive demand curves from underlying consumer preferences.
2. Predict the effects of price and income changes on consumer choice.
1. Show how rationality limits a consumer’s possible choices.
7.3 Bob Kehoe runs a small business clearing snow in the winter and cutting grass in the other seasons.For the last three years he has kept his prices constant but has experienced an upward trend in
7.2 The ice cream store Cool Stuff sells exotic ice creams, including Tropical Cream and Green Mango. Cool Stuff has been varying the prices of these two flavors over the past 12 weeks and has
7.1 The marketing department of Acme Inc. has estimated the following demand function for its popular carpet deodorizer, Freshbreeze: Q = 100 - 5p, where Q is the quantity of an 8-ounce box (sold in
*6.2 Using Excel or another program, estimate the linear OLS demand regression for the iTunes focus group data in the Managerial Solution. What is the R2? What are the coefficient estimates, the
6.1 In the Managerial Solution, we estimated a focus group’s demand function for iTunes downloads.The estimated coefficient on price is -413, and the t-statistic is -12.6.a. Using these values,
5.3 Some companies, such as Heinz, can reliably forecast revenues using pure time-series analysis (that is, by extrapolation of prior data, accounting for seasonal effects). Other companies, such as
5.2 As reported in the text, we estimated Nike’s quarterly revenue (in billions of dollars) function as R = 3.820 + 0.139t + 0.168D1 + 0.482D2 + 0.594D3.What does this estimated equation tell us
5.1 China is the world’s largest e-commerce market, having surpassed the United States in 2013. The biggest holiday in China is the Chinese New Year, which falls in January or February. Forecast
*4.3 You work for a firm producing fitness equipment.You have been told that the demand curve for the firm’s main product—a multi-station home gym—is linear. You have been provided with price
4.2 Suppose that you believe the demand function has a constant-elasticity: Q = Apε, where A is a positive constant and ε is the constant elasticity of demand. You have some data and want to
4.1 According to the regression results for CEO compensation, is the effect of experience on CEO compensation statistically significant? Is it economically significant? Explain. (Hint: See Q&A 3.4.)
3.4 Using the data in Question 2.4, determine the standard error and t-statistic for the price coefficient. Is price statistically significantly different from zero at the 0.05 level of significance?
*3.3 In the Camry focus group analysis in this chapter, we use a regression to estimate the demand for Camrys. Using that equation, how many fewer Camrys would the focus group buy if the price were
3.1 to small changes in the data? In particular, how do your regression results change ifa. The quantity in the first row of Table 3.1 were 2.0 instead of 1.5?b. The quantity in the second row of
2.4 A producer of outdoor clothing used a focus group to obtain information about the demand for fleece jackets with built-in, battery-operated warming panels.At prices of $100, $90, $80, $70, $60,
*2.3 The estimated demand function for ice cream at a popular beach on a summer day is given by Q = 200 - 4.5p, where p is measured in euros. What is the predicted quantity if p = €2.00? If the
2.2 Suppose that a restaurant uses a focus group of regular customers to determine how many customers would buy a proposed new menu item at various prices. Can this information be used to estimate an
2.1 At the Portland Fish Exchange, each day some amount of cod is brought to market. Supply is perfectly inelastic at that amount. The quantity of cod caught and brought to market varies day to
1.12 Ghose and Han (2014) found that the elasticity of demand for Google Play apps is -3.7. (See the Mini-Case: Demand Elasticities for Google Play and Apple Apps.) This elasticity applies to a small
1.11 The Mini-Case, “Anti-Smoking Policies May Reduce Drunk Driving” describes how the equilibrium changed in the market for alcoholic beverages when tobacco taxes rose. Use a supply-and-demand
1.10 Using the coconut oil demand function from Question 1.9, calculate the income elasticity of demand for coconut oil. (If you do not have all the numbers necessary to calculate numerical answers,
*1.9 Calculate the price and cross-price elasticities of demand for coconut oil. The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5p + 16.2pp + 0.2Y, where Q is the
1.8 Suppose that the demand curve for wheat in each country is inelastic up to some “choke” price p*—a price so high that nothing is bought—so that the demand curve is vertical at Q* at
*1.7 According to Duffy-Deno (2003), when the price of broadband access capacity (the amount of information one can send over an Internet connection)increases 10%, commercial customers buy about 3.8%
1.6 Which section of a straight-line demand curve is elastic?
1.5 The demand curve for a good is Q = 1,000 - 5p2.What is the elasticity at the point p = 10 and Q = 500? C
1.4 Luchansky and Monks (2009) estimated that the U.S.demand function for ethanol is Q = p-0.504pg1.269v2.226, where Q is the quantity of ethanol, p is the price of ethanol, pg is the price of
*1.3 The demand function for a good is Q = 200 - 5p.What is the elasticity at the point p = 20 and Q = 100?
1.2 When Apple raised the price of iTunes from 99¢ to$1.29, GS Boyz’s “Stanky Legg” sales dropped from 22,686 units to 19,692 units (Glenn Peoples, “iTunes Price Change: Sales Down, Revenue
1.1 Kumar, Parappurathu, and Raju (2011) found that a 10% increase in the price of rice in India causes a 2.47% drop in consumption, while a 10% increase in income leads to a 0.24% increase in
3.1 to small changes in the data? In particular, how do your regression results change ifa. The quantity in the first row of Table 3.1 were 2.0 instead of 1.5?b. The quantity in the second row of
3.2 How sensitive are your regression results in Question
3.1 Using the data in Table 3.1, estimate the cod demand function if we use only the first seven observations.
2.4 A producer of outdoor clothing used a focus group to obtain information about the demand for fleece jackets with built-in, battery-operated warming panels.At prices of $100, $90, $80, $70, $60,
*2.3 The estimated demand function for ice cream at a popular beach on a summer day is given by Q = 200 - 4.5p, where p is measured in euros. What is the predicted quantity if p = €2.00? If the
2.2 Suppose that a restaurant uses a focus group of regular customers to determine how many customers would buy a proposed new menu item at various prices. Can this information be used to estimate an
2.1 At the Portland Fish Exchange, each day some amount of cod is brought to market. Supply is perfectly inelastic at that amount. The quantity of cod caught and brought to market varies day to
1.12 Ghose and Han (2014) found that the elasticity of demand for Google Play apps is -3.7. (See the Mini-Case: Demand Elasticities for Google Play and Apple Apps.) This elasticity applies to a small
1.11 The Mini-Case, “Anti-Smoking Policies May Reduce Drunk Driving” describes how the equilibrium changed in the market for alcoholic beverages when tobacco taxes rose. Use a supply-and-demand
1.10 Using the coconut oil demand function from Question 1.9, calculate the income elasticity of demand for coconut oil. (If you do not have all the numbers necessary to calculate numerical answers,
*1.9 Calculate the price and cross-price elasticities of demand for coconut oil. The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5p + 16.2pp + 0.2Y, where Q is the
1.8 Suppose that the demand curve for wheat in each country is inelastic up to some “choke” price p*—a price so high that nothing is bought—so that the demand curve is vertical at Q* at
*1.7 According to Duffy-Deno (2003), when the price of broadband access capacity (the amount of information one can send over an Internet connection)increases 10%, commercial customers buy about 3.8%
1.5 The demand curve for a good is Q = 1,000 - 5p2.What is the elasticity at the point p = 10 and Q = 500? C 1.6 Which section of a straight-line demand curve is elastic?
1.4 Luchansky and Monks (2009) estimated that the U.S.demand function for ethanol is Q = p-0.504pg1.269v2.226, where Q is the quantity of ethanol, p is the price of ethanol, pg is the price of
*1.3 The demand function for a good is Q = 200 - 5p.What is the elasticity at the point p = 20 and Q = 100?
1.2 When Apple raised the price of iTunes from 99¢ to$1.29, GS Boyz’s “Stanky Legg” sales dropped from 22,686 units to 19,692 units (Glenn Peoples, “iTunes Price Change: Sales Down, Revenue
1.1 Kumar, Parappurathu, and Raju (2011) found that a 10% increase in the price of rice in India causes a 2.47% drop in consumption, while a 10% increase in income leads to a 0.24% increase in
4. Use regression methods to forecast.
3. Know how to evaluate the reliability of regression analyses.
2. Estimate demand functions using regression analysis.
1. Define and calculate elasticities.
8.3 The demand and supply functions for oil in a small isolated country are Qd = 210 - 1.5p and Qs = -140 + 2p, where p is the price per barrel and quantities are in millions of barrels per year.a.
8.2 Suppose in Munich, Germany, the demand function for men’s haircuts is Qd = 720 - 40p + 0.08Y, where Qd is quantity demanded per month, p the price of a haircut, and Y the average monthly income
8.1 Suppose that the market for video games is competitive with demand function Qd = 130 - 4p + 2Y + 3pm - 2pc, where Qd is the quantity demanded, p is the market price, Y is the monthly budget that
7.1 During the spring and summer of 2008 when gasoline prices were rising quickly, politicians in several countries proposed a moratorium on some or all gasoline taxes to help consumers. In the
6.1 List as many industries as you can for which the supply-and-demand model is likely to be appropriate.
5.9 In Australia, home solar heating and cooling systems are subsidized so that the price of a new system is reduced by AU$ 3,500. (Hint: A subsidy is a negative tax.)a. What is the effect of this
5.8 If the government collects a $1 specific tax, what share of the tax is paid by consumers and firms in each of the following cases? Explain why. (Hint: See Q&A 2.3. Depending on the shape of the
5.7 Worried about excessive drinking among young people, the British government increased the tax on beer by 42% from 2008 to 2012. Under what conditions would a specific tax substantially reduce the
5.6 Use the demand function and the supply function for the avocado market (given in Question 4.4) to determine how the equilibrium price and quantity change when a 55¢ per lb specific tax is
5.5 If the minimum wage raises the market wage, w, but hours worked, L, fall as a result, total wage payments, wL, may rise or fall. Use supply and demand curves to show that either outcome is
5.4 Some cities impose rent control laws, which are price controls or limits on the price of rental accommodations.In 2015, rent control regulations on all new or renewed leases went into effect in
5.3 Usury laws place a ceiling on interest rates that lenders such as banks can charge borrowers. Why would we expect low-income households in states with usury laws to have significantly lower
*5.2 After a severe storm damaged the water supply infrastructure in a city in Europe, the price of drinking water increased sharply in the city. The mayor announced that she would investigate price
5.1 Use a supply-and-demand diagram to show the effects of occupational licensing on the equilibrium wage and number of workers in an occupation as described in the Mini-Case “Occupational
4.12 Use a figure to explain the fisher’s comment about the effect of a large catch on the market price in the cartoon in this chapter about catching lobsters. What is the supply shock?
*4.11 Increases in the price of petroleum affect the demand curve for aluminum. Petroleum-based chemicals(petrochemicals) are the main raw material used for plastic. Plastics are used to make many
4.10 Global warming has had significant negative effects.But it has also had some positive effects. In particular, wine growing regions in several major producing countries have expanded, increasing
4.9 Increasingly, instead of advertising in newspapers, individuals and firms use Web sites that offer free or inexpensive classified ads, such as ClassifiedAds.com, Craigslist.org, Realtor.com,
4.8 Wheat is the second most important cereal in Sudan, but very little of it is produced domestically.Sudan primarily depends on imported wheat. Use a demand-and-supply diagram to show the effect of

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