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Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
1. This situation best represents producer-producer rivalry. Here, Southwest is a
producer attempting to steal customers away from other producers in the form of
lower prices.
2. The maximum you would be willing to pay for this asset is the present value, which is
250,000 250,000 250,000 250,000 250,000
PV = + + + +
(1+0.08) (1+0.08) (1+0.08) ( 1+ 0.08) ( 1+ 0.08)5
2 3 4
¿ $ 998,177.51
3.
a. Net benefits are N(Q) = 20 + 24Q – 4Q2.
b. Net benefits when Q = 1 are N(1) = 20 + 24 – 4 = 40 and when Q = 5 they are
N(5) = 20 + 24(5) – 4(5)2 = 40.
c. Marginal net benefits are MNB(Q) = 24 – 8Q.
d. Marginal net benefits when Q=1 are MNB(1) = 24 – 8(1) = 16 and when Q=5
they are MNB(5) = 24 – 8(5) = -16.
e. Setting MNB(Q) = 24 – 8Q = 0 and solving for Q, we see that net benefits are
maximized when Q = 3.
f. When net benefits are maximized at Q = 3, marginal net benefits are zero. That is,
MNB(3) = 24 – 8(3) = 0.
4.
a. The value of the firm before it pays out current dividends is
PV firm=$ 400,000 ( 0.06−0.04
1+0.06
)
¿ $ 21.2 million.
b. The value of the firm immediately after paying the dividend is
Ex−Dividend
PV firm =$ 400,000 ( 0.06−0.04
1+0.04
)
¿ $ 20.8 million.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
5. The present value of the perpetual stream of cash flows. This is given by
CF $ 120
PV Perpetuity = = =$ 4,000
i 0.03
Full download please contact or qidiantiku.com
Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
1. This situation best represents producer-producer rivalry. Here, Southwest is a
producer attempting to steal customers away from other producers in the form of
lower prices.
2. The maximum you would be willing to pay for this asset is the present value, which is
250,000 250,000 250,000 250,000 250,000
PV = + + + +
(1+0.08) (1+0.08) (1+0.08) ( 1+ 0.08) ( 1+ 0.08)5
2 3 4
¿ $ 998,177.51
3.
a. Net benefits are N(Q) = 20 + 24Q – 4Q2.
b. Net benefits when Q = 1 are N(1) = 20 + 24 – 4 = 40 and when Q = 5 they are
N(5) = 20 + 24(5) – 4(5)2 = 40.
c. Marginal net benefits are MNB(Q) = 24 – 8Q.
d. Marginal net benefits when Q=1 are MNB(1) = 24 – 8(1) = 16 and when Q=5
they are MNB(5) = 24 – 8(5) = -16.
e. Setting MNB(Q) = 24 – 8Q = 0 and solving for Q, we see that net benefits are
maximized when Q = 3.
f. When net benefits are maximized at Q = 3, marginal net benefits are zero. That is,
MNB(3) = 24 – 8(3) = 0.
4.
a. The value of the firm before it pays out current dividends is
PV firm=$ 400,000 ( 0.06−0.04
1+0.06
)
¿ $ 21.2 million.
b. The value of the firm immediately after paying the dividend is
Ex−Dividend
PV firm =$ 400,000 ( 0.06−0.04
1+0.04
)
¿ $ 20.8 million.
Full download please contact or qidiantiku.com
, Full download please contact or qidiantiku.com
5. The present value of the perpetual stream of cash flows. This is given by
CF $ 120
PV Perpetuity = = =$ 4,000
i 0.03
Full download please contact or qidiantiku.com
