Solution Manual for Managerial Econ
LA LA LA LA
omics and Business Strategy 10th Mic
LA LA LA LA LA
hael Baye, Jeff Prince LA LA LA
COMPLETE SOLUTION MANUAL FOR
LA LA LA
Managerial Economics and Business Strategy 10th Editio
LA LA LA LA LA LA
n By Michael Baye, Jeff Prince
LA LA LA LA LA
Chapter 1 LA
The Fundamentals of Managerial Economics A
LA LA LA LA LA
nswers to Questions and Problems
LA LA LA LA
1. ThisLAsituationLAbestLArepresentsLAproducer-
producerLArivalry.L A Here,LASouthwestLAisLAaLAproducerLAattemptingLAtoLAstealLAcusto
mersLAawayLAfromLAotherLAproducersLAinLAtheLAformLAofLAlowerLAprices.
2. TheLAmaximumLAyouLAwouldLAbeLAwillingLAtoLApayLAforLAthisLAassetLAisLAtheLApres
entLAvalue,LAwhichLAis
3.
a. NetLAbenefitsLAareLAN(Q)LA=LA20LA+LA24QLA–LA4Q2.
b. NetLAbenefitsLAwhenLAQLA=LA1LAareLAN(1)LA=LA20LA+LA24LA–
LA4LA=LA40LAandLAwhenLAQLA=LA5LAtheyLAareLAN(5)LA=LA20LA+LA24(5)LA–
2
LA4(5) LA=LA40.
c. MarginalLAnetLAbenefitsLAareLAMNB(Q)LA=LA24LA–LA8Q.
d. MarginalLAnetLAbenefitsLAwhenLAQL A 1LAareLAMNB(1)LA=LA24LA–LA8(1)LA=LA16LAand5LAwhenLAQ
theyLAareLAMNB(5)LA=LA24LA–LA8(5)LA=LA-16.
e. SettingLAMNB(Q)LA=LA24LA–
LA8QLA=LA0LAandLAsolvingLAforLAQ,LAweLAseeLAthatLAnetLAbenefitsLAareLAmaximizedLA
whenLAQLA=LA3.
PageLA1
, f. WhenLAnetLAbenefitsLAareLAmaximizedLAatLAQLA=LA3,LAmarginalLAnetLAbenefitsLAareLAzer
o.LAThatLAis,LAMNB(3)LA=LA24LA–LA8(3)LA=LA0.
4.
a. TheLAvalueLAofLAtheLAfirmLAbeforeLAitLApaysLAoutLAcurrentLAdividendsLAis
.
b. TheLAvalueLAofLAtheLAfirmLAimmediatelyLAafterLApayingLAtheLAdividendLAis
ManagerialLAEconomicsLAandLABusinessLAStrategy,LA10e
CopyrightLA©LA2022LAbyLAMcGraw-HillLAEducation.
AllLArightsLAreserved.LANoLAreproductionLAorLAdistributionLAwithoutLAtheLApriorLAwrittenLAconsentLAofLAMcGrawLAHillLAEducation.
.
5. TheLApresentLAvalueLAofLAtheLAperpetualLAstreamLAofLAcashLAflows.LAThisLAisLAgivenLAby
6. TheLAcompletedLAtableLAlooksLAlikeLAthis:
ControlL TotalLABenef NetLAB Marginal
Total Marginal MarginalLA
LANetLABe
AVariabl itsLAB(Q) LACos enefitsLA LABenefi CostLAMC(
nefitLAM
eLAQ tLAC( N(Q) tLAMB( Q)
NB(Q)
Q) Q)
100 1200 950 250 210 60 150
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
104 1940 1290 650 170 100 70
105 2100 1400 700 160 110 50
106 2250 1520 730 150 120 30
107 2390 1650 740 140 130 10
108 2520 1790 730 130 140 -10
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
PageLA2 MichaelLAR.LABayeLA&LAJeffreyLAT.LAP
rince
, a. NetLAbenefitsLAareLAmaximizedLAatLAQLA=LA107.
b. MarginalLAcostLAisLAslightlyLAsmallerLAthanLAmarginalLAbenefitLA(MCLA=LA130LAandLAM
BLA=LA140).LAThisLAisLAdueLAtoLAtheLAdiscreteLAnatureLAofLAtheLAcontrolLAvariable.
7.
a. TheLAnetLApresentLAvalueLAofLAattendingLAschoolLAisLAtheLApresentLAvalueLAofLAtheLAben
efitsLAderivedLAfromLAattendingLAschoolLA(includingLAtheLAstreamLAofLAhigherLAearnin
gsLAandLAtheLAvalueLAtoLAyouLAofLAtheLAworkLAenvironmentLAandLAprestigeLAthatLAyourL
AeducationLAprovides),LAminusLAtheLAopportunityLAcostLAofLAattendingLAschool.LAAsLA
notedLAinLAtheLAtext,LAtheLAopportunityLAcostLAofLAattendingLAschoolLAisLAgenerallyLAgr
eaterLAthanLAtheLAcostLAofLAbooksLAandLAtuition.LAItLAisLArationalLAforLAanLAindividualLAt
oLAenrollLAinLAgraduateLAschoolLAwhenLAhisLAorLAherLAnetLApresentLAvalueLAisLAgreaterLA
thanLAzero.
b. SinceLAthisLAdecreasesLAtheLAopportunityLAcostLAofLAgettingLAanLAM.B.A.,LAoneLAwoul
dLAexpectLAmoreLAstudentsLAtoLAapplyLAforLAadmissionLAintoLAM.B.A.LAPrograms.
8.
a. HerLAaccountingLAprofitsLAareLA$170,000.LATheseLAareLAcomputedLAasLAtheLAdif
ferenceLAbetweenLArevenuesLA($200,000)LAandLAexplicitLAcostsLA($30,000).
b. ByLAworkingLAasLAaLApainter,LAJaynetLAgivesLAupLAtheLA$110,000LAsheLAcouldLAhaveLAe
arnedLAunderLAherLAnextLAbestLAalternative.LAThisLAimplicitLAcostLAofLA$110,000LAisLAin
LAadditionLAtoLAthe
$30,000LAinLAexplicitLAcosts.LASinceLAherLAeconomicLAcostsLAareLA$140,000,LAherLAeco
nomicLAprofitsLAareLA$200,000LA-LA$140,000LA=LA$60,000.
9.
a. TotalLAbenefitLAwhenLAQLA=LA2LAisLAB(2)LA=LA20(2)LA–
LA2*2 LA=LA32.LAWhenLAQLA=LA10,LAB(10)LA=LA20(10)LA–LA2*10 LA=LA0.
2 2
b. MarginalLAbenefitLAwhenLAQLA=LA2LAisLAMB(2)LA=LA20LA–
LA4(2)LA=LA12.LAWhenLAQLA=LA10,LAitLAisLAMB(10)LA=LA20LA–LA4(10)LA=LA-20.
c. TheLAlevelLAofLAQLAthatLAmaximizesLAtotalLAbenefitsLAsatisfiesLAMB(Q)LA=LA20LA–LA4QLA=LA0,LAsoLAQ
=LA5.
d. TotalLAcostLAwhenLAQLA=LA2LAisLAC(2)LA=LA4LA+LA2*22LA=LA12.L A WhenLAQLA=LA10LAC(Q)LA
=LA4LA+LA2*102LA=LA204.
e. MarginalLAcostLAwhenLAQLA=LA2LAisLAMC(Q)LA=LA4(2)LA=LA8.LAWhenLAQLA=LA10LAMC(
Q)LA=LA4(10)LA=LA40.
f. TheLAlevelLAofLAQLAthatLAminimizesLAtotalLAcostLAisLAMC(Q)LA=LA4QLA=LA0,LAorLAQLA=LA0.
g. NetLAbenefitsLAareLAmaximizedLAwhenLAMNB(Q)LA=LAMB(Q)LA-
LAMC(Q)LA=LA0,LAorLA20LA–LA4QLA–
LA4QLA=LA0.L A SomeLAalgebraLAleadsLAtoLAQLA=LA20/8LA=LA2.5LAasLAtheLAlevelLAofLAoutpu
tLAthatLAmaximizesLAnetLAbenefits.
10.
a. TheLApresentLAvalueLAofLAtheLAstreamLAofLAaccountingLAprofitsLAis
ManagerialLAEconomicsLAandLABusinessLAStrategy,LA PageLA3
10e
, b. TheLApresentLAvalueLAofLAtheLAstreamLAofLAeconomicLAprofitsLAis
PageLA4 MichaelLAR.LABayeLA&LAJeffreyLAT.LAP
rince
LA LA LA LA
omics and Business Strategy 10th Mic
LA LA LA LA LA
hael Baye, Jeff Prince LA LA LA
COMPLETE SOLUTION MANUAL FOR
LA LA LA
Managerial Economics and Business Strategy 10th Editio
LA LA LA LA LA LA
n By Michael Baye, Jeff Prince
LA LA LA LA LA
Chapter 1 LA
The Fundamentals of Managerial Economics A
LA LA LA LA LA
nswers to Questions and Problems
LA LA LA LA
1. ThisLAsituationLAbestLArepresentsLAproducer-
producerLArivalry.L A Here,LASouthwestLAisLAaLAproducerLAattemptingLAtoLAstealLAcusto
mersLAawayLAfromLAotherLAproducersLAinLAtheLAformLAofLAlowerLAprices.
2. TheLAmaximumLAyouLAwouldLAbeLAwillingLAtoLApayLAforLAthisLAassetLAisLAtheLApres
entLAvalue,LAwhichLAis
3.
a. NetLAbenefitsLAareLAN(Q)LA=LA20LA+LA24QLA–LA4Q2.
b. NetLAbenefitsLAwhenLAQLA=LA1LAareLAN(1)LA=LA20LA+LA24LA–
LA4LA=LA40LAandLAwhenLAQLA=LA5LAtheyLAareLAN(5)LA=LA20LA+LA24(5)LA–
2
LA4(5) LA=LA40.
c. MarginalLAnetLAbenefitsLAareLAMNB(Q)LA=LA24LA–LA8Q.
d. MarginalLAnetLAbenefitsLAwhenLAQL A 1LAareLAMNB(1)LA=LA24LA–LA8(1)LA=LA16LAand5LAwhenLAQ
theyLAareLAMNB(5)LA=LA24LA–LA8(5)LA=LA-16.
e. SettingLAMNB(Q)LA=LA24LA–
LA8QLA=LA0LAandLAsolvingLAforLAQ,LAweLAseeLAthatLAnetLAbenefitsLAareLAmaximizedLA
whenLAQLA=LA3.
PageLA1
, f. WhenLAnetLAbenefitsLAareLAmaximizedLAatLAQLA=LA3,LAmarginalLAnetLAbenefitsLAareLAzer
o.LAThatLAis,LAMNB(3)LA=LA24LA–LA8(3)LA=LA0.
4.
a. TheLAvalueLAofLAtheLAfirmLAbeforeLAitLApaysLAoutLAcurrentLAdividendsLAis
.
b. TheLAvalueLAofLAtheLAfirmLAimmediatelyLAafterLApayingLAtheLAdividendLAis
ManagerialLAEconomicsLAandLABusinessLAStrategy,LA10e
CopyrightLA©LA2022LAbyLAMcGraw-HillLAEducation.
AllLArightsLAreserved.LANoLAreproductionLAorLAdistributionLAwithoutLAtheLApriorLAwrittenLAconsentLAofLAMcGrawLAHillLAEducation.
.
5. TheLApresentLAvalueLAofLAtheLAperpetualLAstreamLAofLAcashLAflows.LAThisLAisLAgivenLAby
6. TheLAcompletedLAtableLAlooksLAlikeLAthis:
ControlL TotalLABenef NetLAB Marginal
Total Marginal MarginalLA
LANetLABe
AVariabl itsLAB(Q) LACos enefitsLA LABenefi CostLAMC(
nefitLAM
eLAQ tLAC( N(Q) tLAMB( Q)
NB(Q)
Q) Q)
100 1200 950 250 210 60 150
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
104 1940 1290 650 170 100 70
105 2100 1400 700 160 110 50
106 2250 1520 730 150 120 30
107 2390 1650 740 140 130 10
108 2520 1790 730 130 140 -10
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
PageLA2 MichaelLAR.LABayeLA&LAJeffreyLAT.LAP
rince
, a. NetLAbenefitsLAareLAmaximizedLAatLAQLA=LA107.
b. MarginalLAcostLAisLAslightlyLAsmallerLAthanLAmarginalLAbenefitLA(MCLA=LA130LAandLAM
BLA=LA140).LAThisLAisLAdueLAtoLAtheLAdiscreteLAnatureLAofLAtheLAcontrolLAvariable.
7.
a. TheLAnetLApresentLAvalueLAofLAattendingLAschoolLAisLAtheLApresentLAvalueLAofLAtheLAben
efitsLAderivedLAfromLAattendingLAschoolLA(includingLAtheLAstreamLAofLAhigherLAearnin
gsLAandLAtheLAvalueLAtoLAyouLAofLAtheLAworkLAenvironmentLAandLAprestigeLAthatLAyourL
AeducationLAprovides),LAminusLAtheLAopportunityLAcostLAofLAattendingLAschool.LAAsLA
notedLAinLAtheLAtext,LAtheLAopportunityLAcostLAofLAattendingLAschoolLAisLAgenerallyLAgr
eaterLAthanLAtheLAcostLAofLAbooksLAandLAtuition.LAItLAisLArationalLAforLAanLAindividualLAt
oLAenrollLAinLAgraduateLAschoolLAwhenLAhisLAorLAherLAnetLApresentLAvalueLAisLAgreaterLA
thanLAzero.
b. SinceLAthisLAdecreasesLAtheLAopportunityLAcostLAofLAgettingLAanLAM.B.A.,LAoneLAwoul
dLAexpectLAmoreLAstudentsLAtoLAapplyLAforLAadmissionLAintoLAM.B.A.LAPrograms.
8.
a. HerLAaccountingLAprofitsLAareLA$170,000.LATheseLAareLAcomputedLAasLAtheLAdif
ferenceLAbetweenLArevenuesLA($200,000)LAandLAexplicitLAcostsLA($30,000).
b. ByLAworkingLAasLAaLApainter,LAJaynetLAgivesLAupLAtheLA$110,000LAsheLAcouldLAhaveLAe
arnedLAunderLAherLAnextLAbestLAalternative.LAThisLAimplicitLAcostLAofLA$110,000LAisLAin
LAadditionLAtoLAthe
$30,000LAinLAexplicitLAcosts.LASinceLAherLAeconomicLAcostsLAareLA$140,000,LAherLAeco
nomicLAprofitsLAareLA$200,000LA-LA$140,000LA=LA$60,000.
9.
a. TotalLAbenefitLAwhenLAQLA=LA2LAisLAB(2)LA=LA20(2)LA–
LA2*2 LA=LA32.LAWhenLAQLA=LA10,LAB(10)LA=LA20(10)LA–LA2*10 LA=LA0.
2 2
b. MarginalLAbenefitLAwhenLAQLA=LA2LAisLAMB(2)LA=LA20LA–
LA4(2)LA=LA12.LAWhenLAQLA=LA10,LAitLAisLAMB(10)LA=LA20LA–LA4(10)LA=LA-20.
c. TheLAlevelLAofLAQLAthatLAmaximizesLAtotalLAbenefitsLAsatisfiesLAMB(Q)LA=LA20LA–LA4QLA=LA0,LAsoLAQ
=LA5.
d. TotalLAcostLAwhenLAQLA=LA2LAisLAC(2)LA=LA4LA+LA2*22LA=LA12.L A WhenLAQLA=LA10LAC(Q)LA
=LA4LA+LA2*102LA=LA204.
e. MarginalLAcostLAwhenLAQLA=LA2LAisLAMC(Q)LA=LA4(2)LA=LA8.LAWhenLAQLA=LA10LAMC(
Q)LA=LA4(10)LA=LA40.
f. TheLAlevelLAofLAQLAthatLAminimizesLAtotalLAcostLAisLAMC(Q)LA=LA4QLA=LA0,LAorLAQLA=LA0.
g. NetLAbenefitsLAareLAmaximizedLAwhenLAMNB(Q)LA=LAMB(Q)LA-
LAMC(Q)LA=LA0,LAorLA20LA–LA4QLA–
LA4QLA=LA0.L A SomeLAalgebraLAleadsLAtoLAQLA=LA20/8LA=LA2.5LAasLAtheLAlevelLAofLAoutpu
tLAthatLAmaximizesLAnetLAbenefits.
10.
a. TheLApresentLAvalueLAofLAtheLAstreamLAofLAaccountingLAprofitsLAis
ManagerialLAEconomicsLAandLABusinessLAStrategy,LA PageLA3
10e
, b. TheLApresentLAvalueLAofLAtheLAstreamLAofLAeconomicLAprofitsLAis
PageLA4 MichaelLAR.LABayeLA&LAJeffreyLAT.LAP
rince
