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business
managerial economics

Questions and Answers of Managerial Economics

ST1 0.2 Competitive Market Equilibrium. Competitive market prices are determined by the interplay of aggregate supply and demand; individual firms have no control over price.Market demand reflects an
ST10.1 Market Supply. In some markets, cut-throat competition can exist even when the market is dominated by a small handful of competitors. This usually happens when fixed costs are high, products
Q10.10 The long-run supply curve for a given competitive firm can be written as Qp= -250+ 8P or P = $31.25 + $0.125Qp. Explain why the amount supplied by 50 such competitors is determined by
Q10.9 Suppose that a competitive firm long-run supply curve is given by the expression Qp= —500 + 10P. Does this mean that the firm will supply —500 units of output at a zero price? If so, what
Q10.8 'Airline passenger service is a terrible highfixed cost business featuring fierce price competition.With uniform safety, customers pick the lowest airfare with the most convenient departures.
Q10.7 'If excess profits are rampant in the oil business, why aren't the stockholders of industry giants like Exxon Mobil, Chevron Texaco, and Royal Dutch Petroleum making huge stock-market profits?'
Q10.6 'For smaller firms managed by their owners in competitive markets, profit considerations are apt to dominate almost all decisions. However, managers of giant corporations have little contact
Q10.5 'A higher minimum wage means some low wage workers will get fired because there will be less money available for labor costs. An international minimum wage, scaled according to the working
Q10.4 The Worker Adjustment and Retraining Notification Act (WARN) requires employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass
Q10.3 Competitive firms are sometimes criticized for costly but superfluous product differentiation. Is there an easy means for determining if such efforts are in fact wasteful?
Q10.2 One way of inferring competitive conditions in a market is to consider the lifestyle enjoyed by employees and owners. In vigorously competitive markets, employee compensation tends to be meager
Q10.1 Historically, the Regional Bell Operating Companies (RBOCs) had a monopoly on the provision of local voice phone service. Regulation has now been eased to permit competition from Competitive
Opportunity for normal profits in long-run equilibrium. Ruthless price competition keeps P = MC and P-AR- AC.
Perfect dissemination of information. Cost, price, and product quality information is known by all buyers and all sellers.
Free entry and exit. Firms are not restricted from entering or leaving the industry.
Product homogeneity. The output of each firm is essentially the same as the output of any other firm in the industry.
Large numbers of buyers and sellers. Each firm produces a small portion of industry output, and each customer buys only a small part of the total.
D. What is the total return opportunity cost of the $6000 after-tax income constraint?
C. Calculate the amount of unrealized capital gain earned per year on this investment portfolio.
B. Solve this linear programming problem and interpret all solution values. Also determine the employee's expected before-tax and aftertax income levels.
P9.10 Optimal Output. Omaha Meat Products (OMP) produces and markets Cornhusker Plumpers, an extra-large frankfurter product being introduced on a test market basis into the St. Louis, Missouri,
P9.9 Revenue Maximization. Designed for Sales (DFS), Inc., an Evanston, Illinois-based designer of single-family and multifamily housing units for real estate developers, seeks to determine an
P9.8 Profit Maximization. Creative Accountants, Ltd., is a small San Francisco-based accounting partnership specializing in the preparation of individual (7) and corporate (C) income tax returns.
P9.7 Cost Minimization. Carolina Power and Light (CP&L) is a small electric utility located in the Southeast. CP&L currently uses coal-fired capacity to satisfy its base load electricity demand,
P9.6 Optimal Portfolio Decisions. The James Bond Fund is a mutual fund (open-end investment company) with an objective of maximizing income from a widely diversified corporate bond portfolio. The
P9.5 Optimal Credit Policy. Kate Warner, a senior loan officer with Citybank in Cleveland, Ohio, has both corporate and personal lending customers. On average, the profit contribution margin or
P9.3 LP Setup and Interpretation. The Syflansyd Nut Company has enjoyed booming sales following the success of its 'Sometimes You Feel Like a Nut, Sometimes You Don't' advertising campaign. Syflansyd
P9.2 Fixed Input Combinations. Cherry Devices, Inc., assembles connectors and terminals for electronic products at a plant in New Haven, Connecticut. The plant uses labor (L)and capital (K) in an
P9.1 LP Basics. Indicate whether each of the following statements is true orfalse and explain why.A. Constant returns to scale and constant input prices are the only requirements for a total cost
ST9.2 Profit Maximization. Interstate Bakeries, Inc., is an Atlanta-based manufacturer and distributor of branded bread products. Two leading products. Low Calorie, Qy\, and High Fiber, Qg, bread,
Q9.10 How are the solution values for primal and dual linear programming problems actually employed in practice?
3. What does it mean if a dual variable or shadow price equals zero?
2. What interpretation can be given to the dual variables called the shadow prices orimplicit values?
1. What is the dual objective function?
Q9.9 The primal problem calls for determining the set of outputs that will maximize profit, subject to input constraints.
Q9.8 Will maximizing a profit contribution objective function always resultin also maximizing total net profits?
Q9.7 In linear programming, why is it so critical that the number of nonzero-valued variables exactly equal the number of constraints at corners of the feasible space?
Q9.6 Is the number of isocost, isorevenue, or isoprofit lines in a typical two-input bounded feasible space limited?
Q9.5 Describe the relative distance method used in graphic linear programming analysis.
Q9.4 Assume that output can be produced only using processes A and B. Process A requires inputs L and K to be combined in the fixed ratio 2L:4K, and process B requires 4L:2K. Is it possible to
Q9.3 Do equal distances along a given production process ray in a linear programming problem always represent an identical level of output?
Q9.2 Why can't linear programming be used in each of the following circumstances?A. Strong economies ofscale exist.B.As the firm expands output, the prices of variable factors of production
Q9.1 Give some illustrations of managerial decision situations in which you think the linear programming technique would be useful.
P8.10 Degree of Operating Leverage. Untouchable Package Service (UPS) offers overnight package delivery to Canadian business customers. UPS has recently decided to expand its facilities to better
P8.9 Learning Curves. The St. Thomas Winery plans to open a new production facility in the Napa Valley of California. Based on information provided by the accounting department, the company estimates
P8.8 Multiplant Operation. Appalachia Beverage Company, Inc. is considering alternative proposals for expansion into the Midwest. Alternative 1: Construct a single plant in Indianapolis, Indiana,
P8.7 Cost Elasticity. Power Brokers, Inc. (PBI), a discount brokerage firm, is contemplating opening a new regional office in Providence, Rhode Island. An accounting cost analysis of monthly
P8.5 Profit Contribution. Angelica Pickles is manager of a Quick Copy franchise in White Plains, New York. Pickles projects that by reducing copy charges from 5
P8.4 Accounting and Economic Costs. Three graduate business students are considering operating a fruit smoothie stand in the Harbor Springs, Michigan, resort area during their summer break. This is
P8.3 Incremental Cost. South Park Software, Inc. produces innovative interior decorating software that it sells to design studios, home furnishing stores, and so on. The yearly volume of output is
P8.2 Cost Curves. Indicate whether each of the following involves an upward or downward shift in the long-run average cost curve or, instead, involves a leftward or rightward movement along a given
P8.1 Cost Relations. Determine whether each of the following is true or false. Explain why.A. Average cost equals marginal cost at the minimum efficient scale of plant.B. When total fixed cost and
ST8.1 Learning Curves. Suppose Modern Merchandise, Inc., makes and markets do-ityourself hardware, housewares, and industrial products. The company's new Aperture Miniblind is winning customers by
Q8.8 With traditional medical insurance plans, workers pay a premium that is taken out of each paycheck and must meet an annual deduction of a few hundred dollars. After that, insurance picks up most
Q8.7 The president of a small firm has been complaining to the controller about rising labor and material costs. However, the controller notes that average costs have not increased during the past
Q8.6 The definition of point output elasticity is Eq = 3Q/Q dX/X (X represents all inputs), whereas the definition of point cost elasticity is £q= 9C/C dQ/Q.Explain why £q > 1 indicates increasing
Q8.5 What is the relation between production functions and cost functions? Be sure to include in your discussion the effect of competitive conditions in input factor markets.
Q8.4 Suppose the Big Enchilada restaurant has been offered a binding 1-year lease agreement on an attractive site for €5200 per month. Before the lease agreement has been signed, what is the
Q8.3 Southwest Airlines offers four flights per weekday from Cleveland, Ohio, to Tucson, Arizona. If adding a fifth flight per weekday would cost $15000 per flight, or$110 per available seat,
Q8.2 Assume that 2 years ago, you purchased a new Jeep Wrangler SE 4WD with a soft top for $16500 using 5-year interest-free financing. Today, the remaining loan balance is $9900 and yourJeep has a
Q8.1 What advantages or disadvantages do you see in using current costs for tax and stockholder reporting purposes?
7A.1 Assume that a firm produces its product in a system described in the following production function and price data Q = 3X+5Y + XY Px = $3 Py =$6 Here, X and Y are two variable input factors
2. A multiple regression analysis based upon the data contained in Table 7.5 reveals the following (f statistics in parentheses)Profit/Emp.= €1,269.016 + 0.220 Ind.Profit/Emp.-l-(0.17) (2.33)0.084
1. What firm-specific and industry-specific factors might be used to explain differences among giant corporations in the amount of revenue per employee and profit per employee?
P7.10 Production Function Estimation. Consider the following Cobb-Douglas production function for bus service in a typical metropolitan area Q- b0L b^kb 2Fb^
P7.9 Net Marginal Revenue. Crane, Poole & Schmidt, LLC, is a successful Boston-based law firm. Worker productivity at the firm is measured in billable hours, which vary between partners and
P7.8 Optimal Input Level. Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use ofspot
P7.7 Marginal Revenue Product of Labor. To better serve customers interested in buying cars over the Internet, Smart Motors, Inc., hired Nora Jones to respond to customer inquiries, offer price
P7.6 Optimal Input Mix. The First National Bank received 3000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper.The most recent
P7.5 Optimal Compensation Policy. Cafe-Nervosa.com, based in Seattle, Washington, is a rapidly growing family business that offers a line of distinctive coffee products to local and regional coffee
P7.4 Returns to Scale. Determine whether the following production functions exhibit constant, increasing, or decreasing returns to scale.A. Q = 0.5X + 27 + 40Z B. Q = 3L-M0K + 500 C. Q = 4A + 6B +
P7.3 Compensation Policy. 'Pay for performance' means that employee compensation closely reflects the amount of value derived from each employee's effort. In economic terms, the value derived from
P7.2 Production Function Concepts. Indicate whether each of the following statements is true or false. Explain your answers.A. Decreasing returns to scale and increasing average costs are indicated
P7.1 Marginal Rate of Technical Substitution. The following production table gives estimates of the maximum amounts of output possible with different combinations of two input factors, X and Y.
ST7.2 Production Function Estimation. A manufactory company has estimated the following multiplicative production function for one of its products in a market using monthly production data over the
ST7.1 Optimal Input Usag6. A medical company provides routine testing services for blood banks in an area. Tests are supervised by skilled technicians using equipment produced by two leading
Q7.10 Explain why company productivity is important to managers, employees, and investors. Is superior worker productivity a necessary and sufficient condition for above-average compensation?
Q7.9 Cite some ways for increasing productivity growth in the USA.
Q7.8 Powerful unions like the AFL-CIO are staunch advocates for increasing the federal minimum wage despite the fact that highly trained and experienced AFL-CIO workers tend to earn far more than the
Q7.7 'Oregon's minimum wage increased from $4.75 in 1996 to $5.50 in 1997, to $6 in 1998, and to $6.50 in 1999. According to a study by the Oregon Center for Public Policy, the minimum wage increases
Q7.6 Clarify how profits are maximized and the optimal level of employment is achieved in a competitive labor market when the price of labor Pl= MRPl.
Q7.5 Explain why the MP/P relation is deficient as the sole mechanism for determining the optimal level of resource employment.
Q7.4 'Hourly wage rates are an anachronism.Efficiency requires incentive-based pay tied to performance.' Discuss this statement.
Q7.3 Commission-based and piece-rate-based compensation plans are commonly employed by businesses. Use the concepts developed in the chapter to explain these phenomena.
Q7.2 'Output per worker is expected to increase by 10 per cent during the next year. Therefore, wages can also increase by 10 per cent with no harmful effects on employment, output prices, or
Q7.1 Is use of least-cost input combinations a necessary condition for profit maximization? Is it a sufficient condition? Explain.
G20-2. Undoing Vertical Relationships Identify a vertical relationship in your company, and determine whether it could be managed more profitably by untying, unbundling, inclusion of rivals, or
G20-1. Managing Vertical Relationships Identify a vertical relationship in your company and determine whether it could be managed more profitably by tying, bundling, exclusion, or vertical
20-5. Herbicide Integration Suppose the herbicide manufacturer mentioned in the chapter can vertically integrate into just one of the downstream retail businesses, either home gardening or farming,
20-4. Copier Service Suppose a copy machine manufacturer uses independent service operators (ISOs) to service its copiers. Recently, its machines have become more complex and difficult to service,
20-3. Artificial Tooth Manufacturer An artificial tooth manufacturer sells teeth to distributors through a dealer network.The dealers sell to dental labs, which construct dentures for consumers. The
20-2. Tape Manufacturer A transparent adhesive tape manufacturer produces a wide array of products, including sticky notes, as well as branded and unbranded adhesive tape of different sizes and
20-1. Local Phone Companies State utility commissions typically regulate local phone companies, but local phone companies also offer long-distance service to their customers. Rival long-distance
5. In which of the following cases might you expect to find a manufacturer granting exclusive territories?a. A pet supply chain that requires heavy local advertising to drive salesb. Custom computer
4. Giganto Grocery Chain wishes to sell Boldo detergent. Boldo’s manufacturer, CPG Industries, will not supply Giganto unless Giganto agrees to carry all of CPG’s other detergents. This is an
3. In which of the following instances would an acquisition make the most sense?a. The acquiree is a very profitable company.b. Synergies exist between the acquirer and the acquiree.c. Integration
2. Which of the following is an example of vertical integration?a. A custom software company purchasing a competing software firmb. A soft drink producer buying one of its bottling plantsc. A coal
1. Alpha Industries is considering acquiring Foxtrot Flooring. Foxtrot is worth $20 million to its current owners under its existing operational methods. Due to some opportunities for synergies
G19-4. Functional Silos versus Process Teams Is your company organized around functional divisions? If so, what kind of problems does this cause? What can you do to fix these problems? Compute the
G19-3. Budget Games Does your company tie compensation to meeting a budget? If so, what kind of problems does this practice cause? What can you do to fix these problems? Compute the profit

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