SOLUTION MANUAL FOR el el
Managerial elEconomics, el9th elEdition elWilliam elF. elSamuelson, elStephen elG. elMarks, elJay elL. elZagorsky
Answers to el
Back-of-
el
Chapter
Problems
Chapter el1
1. Managerial eleconomics elis elthe elanalysis elof elimportant elmanagement eldecisions elusing
elthe eltools elof eleconomics. elMost elbusiness eldecisions elare elmotivated elby elthe elgoal elof
elmaximizing elthe elfirm‟s elprofit. elThe eltools elof elmanagerial eleconomics elprovide ela
elguide elto elprofit- elmaximizing eldecisions.
2. i) elMultinational elProduction eland elPricing. elThe elglobal elautomobile elcompany elneeds
elinformation elon el1) eldemand el(how elmany elvehicles elcan elbe elsold elin eleach elmarket elat
eldifferent elprices), el2) elplant elcapacities eland elproduction elcosts, eland el3) eltrade elbarriers
eland eltariffs.
ii) Market elEntry. elRemember elthat elUber elbegan elas ela elridesharing elidea, elbefore elultimately
elbecoming ela elmarket eldisruptor elwith elrespect elto elthe ellong elestablished eltaxicab elindustry.
elCrucial elnecessary elinformation eland elquestions elinclude: elWould elcity elregulators elallow
elUber elto eloperate elat elall? elWhat elmarket elniche el(how elmuch eldemand) elcould elit elcarve
elout elof elthe eltaxi eland elcar elservice elmarkets? elAt elwhat elprices elrelative elto eltaxis? elWould
elcustomers eltrust ela elrideshare elservice? elHow elmany eldrivers elcould elrideshare elfirms
elattract eland elat elwhat elcosts?
iii) Building e l a elNew elBridge. elThe elauthority elshould elestimate elusage elof elthe elbridge
elover elits eluseful ellife, elthe ellikely elcost elof elbuilding eland elmaintaining elthe elbridge, eland
elother elimportant elside-effects, elpro eland elcon el-- elincluding elpositive eleffects elon
elbusiness elactivity eland elthe elimpacts elon elair elpollution eland eltraffic elcongestion.
iv) A e l Regulatory elProblem. elBefore eldeciding elwhether elto elpromote elthe eloil-to-coal
elconversion, elgovernment elregulators elneed elinformation elon elhow elmuch eloil elwould elbe
elsaved el(and elthe eldollar elvalue elof elsavings) eland elthe elcost elof elthe elchain elof elside-effects el--
elnot elonly elthe eldirect elcost elof elelectricity elprovision elbut elalso elpollution elcosts eland
elenvironmental eldamage.
, v) Boeing eland elthe el737 elMax. elBoeing elgathered elextensive elinformation elon elpotential
elairline eldemand elfor ela elnew elmore elfuel-efficient elaircraft, el yet elconsiderable eluncertainty
elremained elwith elrespect elto elfuture elorders. elWould elthe elnew elaircraft elshift elsignificant
elorders eland elsales elfrom elAirbus, elBoeing‟s ellongtime elrival? elCould elBoeing elachieve elits
elaggressive elR&D eland elproduction elplan elon elbudget eland elon elschedule? elCould elit eladdress
eland elsolve elmyriad elreliability eland elsafety elproblems, elbig eland elsmall? elHow elsevere elwould
elbe elongoing elregulatory eloversight eland elhow elhigh ela elbar elwould elthe elFAA elset elfor
elcertification elrequirements? elFive elor elten el years elfrom elnow, elwould elthe elworld eleconomy
elcontinue elto elgrow, elfueling elstrong eldemand elfor elair eltravel eland elfor elthe elnew eland
elimproved elaircraft?
vi) An elR&D elDecision. elThe elpharmaceutical elcompany elshould elquiz elits elscientists elon elthe
elchances elof elsuccess el(and elthe eltimetable elfor elcompletion) elfor eleach elR&D el approach.
elThe elcompany's elmarketing eldepartment elwould elsupply elestimates elof elpossible elrevenues
elfrom elthe eldrug; elits elproduction eldepartment elwould elestimate elpossible elcosts.
vii) David elLetterman. elDave elmust elcarefully elassess elwhat elhe elwants elfrom ela elnew elcontract
el(in elparticular elhow elmuch elhe elvalues elthe elearlier eltime elslot). elAs elthe elnegotiations
elunfold, elDave elwill elglean elvaluable elinformation elas elto elthe elcurrent elcompeting eloffers elof
elCBS eland elNBC. elOf elcourse, elDave elmust elalso eltry elto elassess elhow elfar elthe eltwo elnetworks
elmight elbe elwilling elto elgo elin elsweetening eltheir eloffers.
3. The elsix elsteps elmight ellead elthe elsoft-drink elfirm elto elconsider elthe elfollowing elquestions.
elStep el1: elWhat elis elthe elcontext? elIs elthis elthe elfirm‟s elfirst elsuch elsoft eldrink? elWill elit elbe
elfirst elto elthe elmarketplace, elor elis elit elimitating ela elcompetitor? elStep el2: elWhat elis elthe elprofit
elpotential elfor elsuch ela eldrink? elWould elthe eldrink elachieve elother elobjectives? elIs elthe elfruit
eldrink elcomplementary elto elthe elfirm‟s elother elproducts? elWould elit elenhance elthe elfirm‟s
elimage? elStep el3: elWhich elof elsix elversions elof elthe eldrink elshould elthe elfirm elintroduce?
elWhen el(now elor ellater) eland elwhere el(regionally, elnationally, elor elinternationally) elshould elit
elintroduce elthe eldrink? elWhat elis elan elappropriate eladvertising eland elpromotion elpolicy?
elStep el4: elWhat elare elthe elfirm‟s elprofit elforecasts elfor elthe eldrink elin elits elfirst, elsecond, eland
elthird el years? elWhat elare elthe elchances elthat elthe eldrink elwill elbe ela elfailure elafter el15 elmonths?
elShould elthe elfirm eltest elmarket elthe eldrink elbefore ellaunching elit? elStep el5: elBased elon elthe
elanswers elto elthe elquestions elin elSteps el1 elthrough el4, elwhat elis elthe elfirm‟s elmost elprofitable
elcourse elof elaction? elStep el6: el In ellight elof elexpected el(or elunexpected) eldevelopments elin elthe
elfirst el year elof elthe ellaunch, elhow elshould elthe elfirm elmodify elits elcourse elof elaction?
,
, 4. Decision elvignettes
a. A elcouple elwho elbuy elthe elfirst elhouse elthey elview elhave elprobably elsampled eltoo elfew
elhouses. elHousing elmarkets elare elnotoriously elimperfect. elHouses elcome elin elvarious
elshapes, elsizes, elconditions, elneighborhoods, eland elprices. elPersonal elpreferences elfor
elhouses elalso elvary elenormously. elThe elcouple elis ellikely elto elget ela el"better" elhouse elfor
elthemselves elif elthey elview ela eldozen, eltwo eldozen, elor elmore elhouses elover elthe elcourse elof
eltime elbefore elbuying eltheir el"most- elpreferred" elhouse elfrom elthe ellot. elCircumstances
eljustifying elthe elfirst-house elpurchase elinclude:
(1) elthe elhouse elis elso elgood elthat elviewing elothers elis ela elwaste elof eltime, el(2) elthe elhouse elis elso
elgood eland elthe elcommitment elmust elbe elmade elnow elor elanother elbuyer elwill elclaim elthe
elhouse, el(3) elthe elcouple elmust elbuy elnow el(a eljob eltransfer elhas elbrought elthem elto elthe elarea
eland elschools elopen eltomorrow), el(4) elthey elalready elhave elfull elinformation elabout elthe
el types elof elother elhouses elavailable el(the elwife's elbest elfriend elis ela elreal elestate elagent).
b. The elcompany elseems elto elbe ellaunching elthe elproduct elto elavoid el“wasting” elthe el$6 elmillion
elalready elspent elin eldevelopment. e l This el"sunk" elcost elis elirrelevant eland elshould elbe
elignored. elWhat eldoes elmatter elfor elthe elreinvestment eldecision elare elthe elfuture elrevenues
eland elcosts elof elcontinuing. e l (Reinvest elif elthe elnet elpresent elvalue elof elfuture elprofits elis
elpositive.) e l Some el"close- elto-home" elexamples elof elthe elsunk elcost elfallacy: eli) elA elfellow
elpays el$250 elfor ela el year-long eltennis elmembership elbut eldevelops elsevere eltennis elelbow
elafter eltwo elmonths. elHe elcontinues elto elplay elin elgreat elpain elin elorder elto elget elhis elmoney's
elworth. elii) elMs. elK elhas ela elsubscription elto ela elseries elof elsix elplays elfor el$150. elShe elbraves ela
elsnow elstorm elso elas elnot elto elwaste elthe el$25 elcost. elOn elreflection, elshe eladmits elthat elshe
elwouldn't elhave el gone elhad elshe elbeen elgiven elthe elticket elfor elfree.
c. It's elin elthe elindividual elmotorist's elbest elinterest elto eldrive elon. el(Stopping elis elrisky eland
elinconvenient). elBut elit's elin elthe elcollective elinterest elof elall elthe eldelayed elmotorists elto
elhave elsomeone elstop eland elmove elthe elmattress. elHere's elan elexample elof elthe elpotential
elconflict elbetween elprivate eland elpublic elinterests el(between elprivate elprofit eland elsocial
elwelfare). el In elsuch elcircumstances, elthere elis ela elpotential elrole elfor elgovernment
elintervention.
d. Allowing elthe eluse elof elthalidomide elhad ela eldisastrous eloutcome eland elmore elimportantly
elwas ela elbad eldecision el(besides elits elpotential elrisk, elthe eldrug elwas elof elquestionable
elbenefit elin elaiding elsleep). elThe elthalidomide eldisaster elprompted ela elmuch eltougher
elstance eltoward elprior eldrug eltesting elin elthe elU.S. eland elelsewhere.
Managerial elEconomics, el9th elEdition elWilliam elF. elSamuelson, elStephen elG. elMarks, elJay elL. elZagorsky
Answers to el
Back-of-
el
Chapter
Problems
Chapter el1
1. Managerial eleconomics elis elthe elanalysis elof elimportant elmanagement eldecisions elusing
elthe eltools elof eleconomics. elMost elbusiness eldecisions elare elmotivated elby elthe elgoal elof
elmaximizing elthe elfirm‟s elprofit. elThe eltools elof elmanagerial eleconomics elprovide ela
elguide elto elprofit- elmaximizing eldecisions.
2. i) elMultinational elProduction eland elPricing. elThe elglobal elautomobile elcompany elneeds
elinformation elon el1) eldemand el(how elmany elvehicles elcan elbe elsold elin eleach elmarket elat
eldifferent elprices), el2) elplant elcapacities eland elproduction elcosts, eland el3) eltrade elbarriers
eland eltariffs.
ii) Market elEntry. elRemember elthat elUber elbegan elas ela elridesharing elidea, elbefore elultimately
elbecoming ela elmarket eldisruptor elwith elrespect elto elthe ellong elestablished eltaxicab elindustry.
elCrucial elnecessary elinformation eland elquestions elinclude: elWould elcity elregulators elallow
elUber elto eloperate elat elall? elWhat elmarket elniche el(how elmuch eldemand) elcould elit elcarve
elout elof elthe eltaxi eland elcar elservice elmarkets? elAt elwhat elprices elrelative elto eltaxis? elWould
elcustomers eltrust ela elrideshare elservice? elHow elmany eldrivers elcould elrideshare elfirms
elattract eland elat elwhat elcosts?
iii) Building e l a elNew elBridge. elThe elauthority elshould elestimate elusage elof elthe elbridge
elover elits eluseful ellife, elthe ellikely elcost elof elbuilding eland elmaintaining elthe elbridge, eland
elother elimportant elside-effects, elpro eland elcon el-- elincluding elpositive eleffects elon
elbusiness elactivity eland elthe elimpacts elon elair elpollution eland eltraffic elcongestion.
iv) A e l Regulatory elProblem. elBefore eldeciding elwhether elto elpromote elthe eloil-to-coal
elconversion, elgovernment elregulators elneed elinformation elon elhow elmuch eloil elwould elbe
elsaved el(and elthe eldollar elvalue elof elsavings) eland elthe elcost elof elthe elchain elof elside-effects el--
elnot elonly elthe eldirect elcost elof elelectricity elprovision elbut elalso elpollution elcosts eland
elenvironmental eldamage.
, v) Boeing eland elthe el737 elMax. elBoeing elgathered elextensive elinformation elon elpotential
elairline eldemand elfor ela elnew elmore elfuel-efficient elaircraft, el yet elconsiderable eluncertainty
elremained elwith elrespect elto elfuture elorders. elWould elthe elnew elaircraft elshift elsignificant
elorders eland elsales elfrom elAirbus, elBoeing‟s ellongtime elrival? elCould elBoeing elachieve elits
elaggressive elR&D eland elproduction elplan elon elbudget eland elon elschedule? elCould elit eladdress
eland elsolve elmyriad elreliability eland elsafety elproblems, elbig eland elsmall? elHow elsevere elwould
elbe elongoing elregulatory eloversight eland elhow elhigh ela elbar elwould elthe elFAA elset elfor
elcertification elrequirements? elFive elor elten el years elfrom elnow, elwould elthe elworld eleconomy
elcontinue elto elgrow, elfueling elstrong eldemand elfor elair eltravel eland elfor elthe elnew eland
elimproved elaircraft?
vi) An elR&D elDecision. elThe elpharmaceutical elcompany elshould elquiz elits elscientists elon elthe
elchances elof elsuccess el(and elthe eltimetable elfor elcompletion) elfor eleach elR&D el approach.
elThe elcompany's elmarketing eldepartment elwould elsupply elestimates elof elpossible elrevenues
elfrom elthe eldrug; elits elproduction eldepartment elwould elestimate elpossible elcosts.
vii) David elLetterman. elDave elmust elcarefully elassess elwhat elhe elwants elfrom ela elnew elcontract
el(in elparticular elhow elmuch elhe elvalues elthe elearlier eltime elslot). elAs elthe elnegotiations
elunfold, elDave elwill elglean elvaluable elinformation elas elto elthe elcurrent elcompeting eloffers elof
elCBS eland elNBC. elOf elcourse, elDave elmust elalso eltry elto elassess elhow elfar elthe eltwo elnetworks
elmight elbe elwilling elto elgo elin elsweetening eltheir eloffers.
3. The elsix elsteps elmight ellead elthe elsoft-drink elfirm elto elconsider elthe elfollowing elquestions.
elStep el1: elWhat elis elthe elcontext? elIs elthis elthe elfirm‟s elfirst elsuch elsoft eldrink? elWill elit elbe
elfirst elto elthe elmarketplace, elor elis elit elimitating ela elcompetitor? elStep el2: elWhat elis elthe elprofit
elpotential elfor elsuch ela eldrink? elWould elthe eldrink elachieve elother elobjectives? elIs elthe elfruit
eldrink elcomplementary elto elthe elfirm‟s elother elproducts? elWould elit elenhance elthe elfirm‟s
elimage? elStep el3: elWhich elof elsix elversions elof elthe eldrink elshould elthe elfirm elintroduce?
elWhen el(now elor ellater) eland elwhere el(regionally, elnationally, elor elinternationally) elshould elit
elintroduce elthe eldrink? elWhat elis elan elappropriate eladvertising eland elpromotion elpolicy?
elStep el4: elWhat elare elthe elfirm‟s elprofit elforecasts elfor elthe eldrink elin elits elfirst, elsecond, eland
elthird el years? elWhat elare elthe elchances elthat elthe eldrink elwill elbe ela elfailure elafter el15 elmonths?
elShould elthe elfirm eltest elmarket elthe eldrink elbefore ellaunching elit? elStep el5: elBased elon elthe
elanswers elto elthe elquestions elin elSteps el1 elthrough el4, elwhat elis elthe elfirm‟s elmost elprofitable
elcourse elof elaction? elStep el6: el In ellight elof elexpected el(or elunexpected) eldevelopments elin elthe
elfirst el year elof elthe ellaunch, elhow elshould elthe elfirm elmodify elits elcourse elof elaction?
,
, 4. Decision elvignettes
a. A elcouple elwho elbuy elthe elfirst elhouse elthey elview elhave elprobably elsampled eltoo elfew
elhouses. elHousing elmarkets elare elnotoriously elimperfect. elHouses elcome elin elvarious
elshapes, elsizes, elconditions, elneighborhoods, eland elprices. elPersonal elpreferences elfor
elhouses elalso elvary elenormously. elThe elcouple elis ellikely elto elget ela el"better" elhouse elfor
elthemselves elif elthey elview ela eldozen, eltwo eldozen, elor elmore elhouses elover elthe elcourse elof
eltime elbefore elbuying eltheir el"most- elpreferred" elhouse elfrom elthe ellot. elCircumstances
eljustifying elthe elfirst-house elpurchase elinclude:
(1) elthe elhouse elis elso elgood elthat elviewing elothers elis ela elwaste elof eltime, el(2) elthe elhouse elis elso
elgood eland elthe elcommitment elmust elbe elmade elnow elor elanother elbuyer elwill elclaim elthe
elhouse, el(3) elthe elcouple elmust elbuy elnow el(a eljob eltransfer elhas elbrought elthem elto elthe elarea
eland elschools elopen eltomorrow), el(4) elthey elalready elhave elfull elinformation elabout elthe
el types elof elother elhouses elavailable el(the elwife's elbest elfriend elis ela elreal elestate elagent).
b. The elcompany elseems elto elbe ellaunching elthe elproduct elto elavoid el“wasting” elthe el$6 elmillion
elalready elspent elin eldevelopment. e l This el"sunk" elcost elis elirrelevant eland elshould elbe
elignored. elWhat eldoes elmatter elfor elthe elreinvestment eldecision elare elthe elfuture elrevenues
eland elcosts elof elcontinuing. e l (Reinvest elif elthe elnet elpresent elvalue elof elfuture elprofits elis
elpositive.) e l Some el"close- elto-home" elexamples elof elthe elsunk elcost elfallacy: eli) elA elfellow
elpays el$250 elfor ela el year-long eltennis elmembership elbut eldevelops elsevere eltennis elelbow
elafter eltwo elmonths. elHe elcontinues elto elplay elin elgreat elpain elin elorder elto elget elhis elmoney's
elworth. elii) elMs. elK elhas ela elsubscription elto ela elseries elof elsix elplays elfor el$150. elShe elbraves ela
elsnow elstorm elso elas elnot elto elwaste elthe el$25 elcost. elOn elreflection, elshe eladmits elthat elshe
elwouldn't elhave el gone elhad elshe elbeen elgiven elthe elticket elfor elfree.
c. It's elin elthe elindividual elmotorist's elbest elinterest elto eldrive elon. el(Stopping elis elrisky eland
elinconvenient). elBut elit's elin elthe elcollective elinterest elof elall elthe eldelayed elmotorists elto
elhave elsomeone elstop eland elmove elthe elmattress. elHere's elan elexample elof elthe elpotential
elconflict elbetween elprivate eland elpublic elinterests el(between elprivate elprofit eland elsocial
elwelfare). el In elsuch elcircumstances, elthere elis ela elpotential elrole elfor elgovernment
elintervention.
d. Allowing elthe eluse elof elthalidomide elhad ela eldisastrous eloutcome eland elmore elimportantly
elwas ela elbad eldecision el(besides elits elpotential elrisk, elthe eldrug elwas elof elquestionable
elbenefit elin elaiding elsleep). elThe elthalidomide eldisaster elprompted ela elmuch eltougher
elstance eltoward elprior eldrug eltesting elin elthe elU.S. eland elelsewhere.
