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Solution Manual for Managerial Economics and Business Strategy 10th Michael Baye, Jeff Prince
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,COMPLETE SOLUTION MANUAL FOR J J J




Managerial Economics and Business Strategy 10th Edition By
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Michael Baye, Jeff Prince
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Chapter 1 J




The Fundamentals of Managerial Economics Ans
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wers to Questions and Problems J J J J




1. This situation best represents producer-
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producer rivalry. Here, Southwest is a producer attempting to steal customers away f
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rom other producers in the form of lower prices.
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2. The maximum you would be willing to pay for this asset is the present value, whic
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h is
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3.
a. Net benefits are N(Q) = 20 + 24Q – 4Q2.
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b. Net benefits when Q = 1 are N(1) = 20 + 24 –
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4 = 40 and when Q = 5 they are N(5) = 20 + 24(5) – 4(5)2 = 40.
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c. Marginal net benefits are MNB(Q) = 24 – 8Q. J J J J J J J J




d. Marginal net benefits when Q 1 are MNB(1) = 24 – 8(1) = 16 and when Q
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they are MNB(5) = 24 – 8(5) = -16. J J J J J J J J



e. Setting MNB(Q) = 24 – J J J J



8Q = 0 and solving for Q, we see that net benefits are maximized when Q = 3.
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,
, f. When net benefits are maximized at Q = 3, marginal net benefits are zero. That is, MNB
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(3) = 24 – 8(3) = 0.
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4.
a. The value of the firm before it pays out current dividends is
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.

b. The value of the firm immediately after paying the dividend is
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Managerial Economics and Business Strategy, 10e
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Copyright © 2022 by McGraw-Hill Education. J J J J J


All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill Education.
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.

5. The present value of the perpetual stream of cash flows. This is given by
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6. The completed table looks like this:
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Control Total Benefi Net Be Marginal
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Net Bene
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Variable ts B(Q) J CostJ J nefits N( J JBenefit J ost MC(Q)
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fit MNB(J

QJ C(Q) Q) MB(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


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