SOLUTION MANUAL FOR MANAGERIAL ECONOMICS AND BUSINESS STRATEGY 10TH MICHAEL BAYE, JEFF PRINCE LATEST UPDATE 2025/2026 A+

SOLUTION MANUAL FOR
MANAGERIAL ECONOMICS AND
BUSINESS STRATEGY 10TH
MICHAEL BAYE, JEFF PRINCE
LATEST UPDATE 2025/2026 A+




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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 = + 2 + 3 + 4 +
(1 + 0.08) (1 + 0.08) (1 + 0.08) (1 + 0.08) (1 + 0.08)5
= $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
1 + 0.06
𝑃𝑉𝑓𝑖𝑟𝑚 = $400,000 ( )
0.06 − 0.04

= $21.2 Million.

b. The Value Of The Firm Immediately After Paying The Dividend Is




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, 1 + 0.04
𝑃𝑉𝐸𝑥−𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 = $400,000 ( )
𝑓𝑖𝑟𝑚
0.06 − 0.04

= $20.8 Million.

5. The Present Value Of The Perpetual Stream Of Cash Flows. This Is Given By
𝐶𝐹 $120
𝑃𝑉𝑃𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 = = = $4,000
𝑖 0.03


6. The Completed Table Looks Like This:

Marginal
Contro Total Tota Net Margin Marginal
Net
l Benefit l Benefit al Cost
Benefit
Variabl s B(Q) Cost s N(Q) Benefit MC(Q)
MNB(Q)
eQ C(Q MB(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


a. Net Benefits Are Maximized At Q = 107.
b. Marginal Cost Is Slightly Smaller Than Marginal Benefit (MC = 130 And
MB = 140). This Is Due To The Discrete Nature Of The Control Variable.

7.
a. The Net Present Value Of Attending School Is The Present Value Of The
Benefits Derived From Attending School (Including The Stream Of
Higher Earnings And The Value To You Of The Work Environment And
Prestige That Your Education Provides), Minus The Opportunity Cost
Of Attending School. As Noted In The Text, The Opportunity Cost Of
Attending School Is Generally Greater Than The Cost Of Books And
Tuition. It Is Rational For An Individual To Enroll In Graduate School
When His Or Her Net Present Value Is Greater Than Zero.
8. Since This Decreases The Opportunity Cost Of Getting An M.B.A., One Would
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, Expect More Students To Apply For Admission Into M.B.A. Programs.




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