SOLUTION MANUAL FOR ww ww
Managerial Economics, 9th Edition William F. Samuelson, Stephen G. Marks, Jay L.
ww ww ww ww ww ww ww ww ww ww ww
Zagorsky
ww
Answers to ww
Back-of-
ww
Chapter
Problems
Chapter 1 ww
1. Managerial economics is the analysis of important management decisions using
ww ww ww ww ww ww ww ww ww
the tools of economics. Most business decisions are motivated by the goal of
ww ww ww ww ww ww ww ww ww ww ww ww ww
maximizing the firm‟s profit. The tools of managerial economics provide a
ww ww ww ww ww ww ww ww ww ww ww
guide to profit- maximizing decisions.
ww ww ww ww ww
2. i) Multinational Production and Pricing. The global automobile company needs
ww ww ww ww ww ww ww ww ww
information on 1) demand (how many vehicles can be sold in each market at
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
different prices), 2) plant capacities and production costs, and 3) trade barriers
ww ww ww ww ww ww ww ww ww ww ww ww
ww and tariffs.ww
ii) Market Entry. Remember that Uber began as a ridesharing idea, before
ww w w ww ww ww ww ww ww ww ww
wwultimately becoming a market disruptor with respect to the long established
ww ww ww ww ww ww ww ww ww ww
wwtaxicab industry. Crucial necessary information and questions include: Would city
ww ww ww ww ww ww ww ww ww
regulators allow Uber to operate at all? What market niche (how much demand)
ww ww ww ww ww ww ww ww ww ww ww ww ww
wwcould it carve out of the taxi and car service markets? At what prices relative to
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
wwtaxis? Would customers trust a rideshare service? How many drivers could
ww ww ww ww ww ww ww ww ww ww
wwrideshare firms attract and at what costs?
ww ww ww ww ww ww
iii) Building a New Bridge. The authority should estimate usage of the bridge
w w ww ww w w ww ww ww ww ww ww ww
ww over its useful life, the likely cost of building and maintaining the bridge, and
ww ww ww ww ww ww ww ww ww ww ww ww ww
ww other important side-effects, pro and con -- including positive effects on
ww ww ww ww ww ww ww ww ww ww
ww business activity and the impacts on air pollution and traffic congestion.
ww ww ww ww ww ww ww ww ww ww
iv) A Regulatory Problem. Before deciding whether to promote the oil-to-coal
w w ww w w ww ww ww ww ww ww
conversion, government regulators need information on how much oil would be
ww ww ww ww ww ww ww ww ww ww ww
saved (and the dollar value of savings) and the cost of the chain of side-effects -
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
- not only the direct cost of electricity provision but also pollution costs and
ww ww ww ww ww ww ww ww ww ww ww ww ww
, environmental damage.
ww ww
, v) Boeing and the 737 Max. Boeing gathered extensive information on potential
ww ww ww ww w w ww ww ww ww ww
airline demand for a new more fuel-efficient aircraft, yet considerable uncertainty
ww ww ww ww ww ww ww ww ww ww ww
remained with respect to future orders. Would the new aircraft shift significant
ww ww ww ww ww ww ww ww ww ww ww ww
orders and sales from Airbus, Boeing‟s longtime rival? Could Boeing achieve its
ww ww ww ww ww ww ww ww ww ww ww ww
aggressive R&D and production plan on budget and on schedule? Could it
ww ww ww ww ww ww ww ww ww ww ww ww
address and solve myriad reliability and safety problems, big and small? How
ww ww ww ww ww ww ww ww ww ww ww ww
severe would be ongoing regulatory oversight and how high a bar would the FAA
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
set for certification requirements? Five or ten years from now, would the world
ww ww ww ww ww ww ww ww ww ww ww ww ww
economy continue to grow, fueling strong demand for air travel and for the new
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
and improved aircraft?
ww ww ww
vi) An R&D Decision. The pharmaceutical company should quiz its scientists on
ww ww w w ww ww ww ww ww ww ww
the chances of success (and the timetable for completion) for each R&D
ww ww ww ww ww ww ww ww ww ww ww ww
approach. The company's marketing department would supply estimates of
ww w w ww ww ww ww ww ww ww
possible revenues from the drug; its production department would estimate
ww ww ww ww ww ww ww ww ww ww
possible costs.
ww ww
vii) David Letterman. Dave must carefully assess what he wants from a new
ww w w ww ww ww ww ww ww ww ww ww
contract (in particular how much he values the earlier time slot). As the
ww ww ww ww ww ww ww ww ww ww ww ww ww
ww negotiations unfold, Dave will glean valuable information as to the current
ww ww ww ww ww ww ww ww ww ww
ww competing offers of CBS and NBC. Of course, Dave must also try to assess how
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
ww far the two networks might be willing to go in sweetening their offers.
ww ww ww ww ww ww ww ww ww ww ww ww
3. The six steps might lead the soft-drink firm to consider the following questions.
ww ww ww ww ww ww ww ww ww ww ww ww
Step 1: What is the context? Is this the firm‟s first such soft drink? Will it be
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
first to the marketplace, or is it imitating a competitor? Step 2: What is the profit
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
potential for such a drink? Would the drink achieve other objectives? Is the fruit
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
drink complementary to the firm‟s other products? Would it enhance the firm‟s
ww ww ww ww ww ww ww ww ww ww ww ww
image? Step 3: Which of six versions of the drink should the firm introduce?
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
When (now or later) and where (regionally, nationally, or internationally) should
ww ww ww ww ww ww ww ww ww ww ww
it introduce the drink? What is an appropriate advertising and promotion policy?
ww ww ww ww ww ww ww ww ww ww ww ww
Step 4: What are the firm‟s profit forecasts for the drink in its first, second, and
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
third years? What are the chances that the drink will be a failure after 15
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
months? Should the firm test market the drink before launching it? Step 5: Based
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
on the answers to the questions in Steps 1 through 4, what is the firm‟s most
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
profitable course of action? Step 6: In light of expected (or unexpected)
ww ww ww ww ww ww ww ww ww ww ww ww
developments in the first year of the launch, how should the firm modify its
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
course of action?
ww ww ww
,
Managerial Economics, 9th Edition William F. Samuelson, Stephen G. Marks, Jay L.
ww ww ww ww ww ww ww ww ww ww ww
Zagorsky
ww
Answers to ww
Back-of-
ww
Chapter
Problems
Chapter 1 ww
1. Managerial economics is the analysis of important management decisions using
ww ww ww ww ww ww ww ww ww
the tools of economics. Most business decisions are motivated by the goal of
ww ww ww ww ww ww ww ww ww ww ww ww ww
maximizing the firm‟s profit. The tools of managerial economics provide a
ww ww ww ww ww ww ww ww ww ww ww
guide to profit- maximizing decisions.
ww ww ww ww ww
2. i) Multinational Production and Pricing. The global automobile company needs
ww ww ww ww ww ww ww ww ww
information on 1) demand (how many vehicles can be sold in each market at
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
different prices), 2) plant capacities and production costs, and 3) trade barriers
ww ww ww ww ww ww ww ww ww ww ww ww
ww and tariffs.ww
ii) Market Entry. Remember that Uber began as a ridesharing idea, before
ww w w ww ww ww ww ww ww ww ww
wwultimately becoming a market disruptor with respect to the long established
ww ww ww ww ww ww ww ww ww ww
wwtaxicab industry. Crucial necessary information and questions include: Would city
ww ww ww ww ww ww ww ww ww
regulators allow Uber to operate at all? What market niche (how much demand)
ww ww ww ww ww ww ww ww ww ww ww ww ww
wwcould it carve out of the taxi and car service markets? At what prices relative to
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
wwtaxis? Would customers trust a rideshare service? How many drivers could
ww ww ww ww ww ww ww ww ww ww
wwrideshare firms attract and at what costs?
ww ww ww ww ww ww
iii) Building a New Bridge. The authority should estimate usage of the bridge
w w ww ww w w ww ww ww ww ww ww ww
ww over its useful life, the likely cost of building and maintaining the bridge, and
ww ww ww ww ww ww ww ww ww ww ww ww ww
ww other important side-effects, pro and con -- including positive effects on
ww ww ww ww ww ww ww ww ww ww
ww business activity and the impacts on air pollution and traffic congestion.
ww ww ww ww ww ww ww ww ww ww
iv) A Regulatory Problem. Before deciding whether to promote the oil-to-coal
w w ww w w ww ww ww ww ww ww
conversion, government regulators need information on how much oil would be
ww ww ww ww ww ww ww ww ww ww ww
saved (and the dollar value of savings) and the cost of the chain of side-effects -
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
- not only the direct cost of electricity provision but also pollution costs and
ww ww ww ww ww ww ww ww ww ww ww ww ww
, environmental damage.
ww ww
, v) Boeing and the 737 Max. Boeing gathered extensive information on potential
ww ww ww ww w w ww ww ww ww ww
airline demand for a new more fuel-efficient aircraft, yet considerable uncertainty
ww ww ww ww ww ww ww ww ww ww ww
remained with respect to future orders. Would the new aircraft shift significant
ww ww ww ww ww ww ww ww ww ww ww ww
orders and sales from Airbus, Boeing‟s longtime rival? Could Boeing achieve its
ww ww ww ww ww ww ww ww ww ww ww ww
aggressive R&D and production plan on budget and on schedule? Could it
ww ww ww ww ww ww ww ww ww ww ww ww
address and solve myriad reliability and safety problems, big and small? How
ww ww ww ww ww ww ww ww ww ww ww ww
severe would be ongoing regulatory oversight and how high a bar would the FAA
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
set for certification requirements? Five or ten years from now, would the world
ww ww ww ww ww ww ww ww ww ww ww ww ww
economy continue to grow, fueling strong demand for air travel and for the new
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
and improved aircraft?
ww ww ww
vi) An R&D Decision. The pharmaceutical company should quiz its scientists on
ww ww w w ww ww ww ww ww ww ww
the chances of success (and the timetable for completion) for each R&D
ww ww ww ww ww ww ww ww ww ww ww ww
approach. The company's marketing department would supply estimates of
ww w w ww ww ww ww ww ww ww
possible revenues from the drug; its production department would estimate
ww ww ww ww ww ww ww ww ww ww
possible costs.
ww ww
vii) David Letterman. Dave must carefully assess what he wants from a new
ww w w ww ww ww ww ww ww ww ww ww
contract (in particular how much he values the earlier time slot). As the
ww ww ww ww ww ww ww ww ww ww ww ww ww
ww negotiations unfold, Dave will glean valuable information as to the current
ww ww ww ww ww ww ww ww ww ww
ww competing offers of CBS and NBC. Of course, Dave must also try to assess how
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
ww far the two networks might be willing to go in sweetening their offers.
ww ww ww ww ww ww ww ww ww ww ww ww
3. The six steps might lead the soft-drink firm to consider the following questions.
ww ww ww ww ww ww ww ww ww ww ww ww
Step 1: What is the context? Is this the firm‟s first such soft drink? Will it be
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
first to the marketplace, or is it imitating a competitor? Step 2: What is the profit
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
potential for such a drink? Would the drink achieve other objectives? Is the fruit
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
drink complementary to the firm‟s other products? Would it enhance the firm‟s
ww ww ww ww ww ww ww ww ww ww ww ww
image? Step 3: Which of six versions of the drink should the firm introduce?
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
When (now or later) and where (regionally, nationally, or internationally) should
ww ww ww ww ww ww ww ww ww ww ww
it introduce the drink? What is an appropriate advertising and promotion policy?
ww ww ww ww ww ww ww ww ww ww ww ww
Step 4: What are the firm‟s profit forecasts for the drink in its first, second, and
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
third years? What are the chances that the drink will be a failure after 15
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
months? Should the firm test market the drink before launching it? Step 5: Based
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
on the answers to the questions in Steps 1 through 4, what is the firm‟s most
ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww ww
profitable course of action? Step 6: In light of expected (or unexpected)
ww ww ww ww ww ww ww ww ww ww ww ww
developments in the first year of the launch, how should the firm modify its
ww ww ww ww ww ww ww ww ww ww ww ww ww ww
course of action?
ww ww ww
,
