just simple answers(pre-selected 10 questions below, out of 14)
1. Critically evaluate the following: An advertising executive is heard to say: “Unit sales went
up last year by 15% when we increased advertising expenditures by 5%. Clearly,
advertising is very effective. Our advertising budget should be funded at an even larger
amount this year.” (Hint: Be sure to address whether the executive’s statement is
2. Evaluate the following statement: “The best expansion path for a firm contemplating
growth is along the points of tangency between the firm’s isoquant and isocostlines.”
3. A firm with a 2 input production process measures the marginal output with respect to
one input at 6 while the price of that input is $3.00. Knowing that the price of the second
input is $2.00, what should the firm do to optimize production (assume that the MPP’s are
independent for the sake of this discussion).Why?
4. Barb listens only to Broadway Musicals or Dead Kennedys. She buys 10 Broadway
Musical downloads and 20 downloads by Dead Kennedys per month, but would forgo
downloads by Dead Kennedys for the Broadway Musical downloads at the rate of 2.5-to1 whenever she has more Dead Kennedys units than Broadway Musical units. She
would forego only 1/2 of a unit by Dead Kennedys per Broadway Musical when the
opposite is true, however.
If you offered her 20 Broadway Musical tunes next month, how many of Dead Kennedys
downloads would she need to remain at the same satisfaction level? Be sure to show
5. Suppose that a government bonds pay 5% in a riskless fashion. Also suppose that stocks
investments could pay 10% but with considerable risk. Suppose a 50:50 blend between
the two investments would pay 7.5% (but would carry risk). Although each investor’s view
on risk differs, the current investor’s indifference curves for these investments are shown
in the chart below for an investment of $1 million. How should this investor allocate the
funds between these 2 investments? Why do the curves slope upward and to the right
when we’ve seen that most, if not all, slope downward? Describe how the investor’s
curves would appear if the 50:50 strategy was adopted, but would not accept any
6. Describe the effect of each of the following events on the demand or supply of gasoline in
the USA. Further indicate the likely direction in the amount of gasoline exchanged AND
the expected market price (both) when:
a. domestic incomes decrease
b. the price of natural gas rises
c. A new oil field is discovered and put into service.
d. The average price of automobiles declines.
8. A certain industry with five firms is under scrutiny due to an impending merger. Firm 1
has 30% of the market while firm 2 and 3 has 25%. The remaining firms have 10% each.
What is the Herfindahl-Hirschman index for the industry? Based on DOJ guidelines, do
you think it is likely that the Justice Department would block a merger between firms 3
and 4? What other aspects of the marketplace might the department consider as it
evaluates the shares?
9. True or false? A sunk cost is always a fixed cost, but a fixed cost is not necessarily a
sunk cost. Explain your response being sure to define your terms.
11. A recent study indicates that the long-run average cost curve for cellular telecom
companies is basically flat. What do you expect to happen to industry output and costs
per subscriber if the number of cellular providers were reduced (assuming the costing
finding is true)? Why?
13. In the 1900s, five firms supplied amateur color film in the United States: Kodak, Fuji,
Konica, Agfa, and 3M. From a technical viewpoint, there was little difference in the quality
of color film produced by these firms, yet Kodak’s market share was 70 percent. The own
price elasticity of demand for Kodak film was -2.0 and the market elasticity of demand
was -1.25. Suppose that in the 1900s, the average retail price of a roll of Kodak film was
$7.00 and that Kodak’s marginal cost was $3.00 per roll. Based on this information,
discuss industry concentration, demand and market conditions, and the pricing behavior
of Kodak in the 1990s. From a managerial economics point of view, do you think the
industry environment is significantly different today? Explain.
The course book info is:
Managerial Economics and Business Strategy, by Michael Baye& Jeffrey Prince 8th Edition (2014)
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