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Managerial Economics
and Business Strategy
ST
10th Edition
UV
SOLUTIONS
IA
MANUAL
_A
PP
Michael Baye, Jeff Prince
RO
Comprehensive Solutions Manual for Instructors
and Students
||| ||| || ||| || | || ||| | || ||| |
VE
9781260940541
© Michael Baye & Jeff Prince. All rights reserved. Reproduction or
distribution without permission is prohibited.
D?
© MEDGEEK
, TABLE OF CONTENTS
Solutions Manual – Managerial Economics and Business Strategy (10th Edition)
Authors: Michael Baye and Jeff Prince
ISBN: 9781260940541
ST
PART I: THE FUNDAMENTALS OF MARKET ANALYSIS
Chapter 1: The Fundamentals of Managerial Economics
Chapter 2: Market Forces: Demand and Supply
UV
Chapter 3: Quantitative Demand Analysis
Chapter 4: The Theory of Individual Behavior
PART II: PRODUCTION AND COST ANALYSIS
Chapter 5: The Production Process and Costs
IA
Chapter 6: The Organization of the Firm
PART III: MARKET STRUCTURE AND STRATEGY
_A
Chapter 7: The Nature of Industry
Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Chapter 9: Basic Oligopoly Models
Chapter 10: Game Theory: Inside Oligopoly
PP
PART IV: ADVANCED TOPICS IN STRATEGY
Chapter 11: Pricing Strategies for Firms with Market Power
Chapter 12: The Economics of Information
RO
VE
D?
, COMPLETE SOLUTION MANUAL FOR
Managerial Economics and Business Strategy 10th Edition
By Michael Baye, Jeff Prince
ST
Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
UV
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.
IA
2. The maximum you would be willing to pay for this asset is the present value, which is
_A
3.
a. Net benefits are N(Q) = 20 + 24Q – 4Q2.
PP
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.
RO
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.
VE
a. The value of the firm before it pays out current dividends is
( )
D?
.
b. The value of the firm immediately after paying the dividend is
Managerial Economics and Business Strategy, 10e Page 1
Copyright © 2022 by McGraw-Hill Education.
All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, ( )
.
5. The present value of the perpetual stream of cash flows. This is given by
ST
6. The completed table looks like this:
UV
Marginal
Control Total Total Net Marginal Marginal
Net
Variable Benefits Cost Benefits Benefit Cost
Benefit
Q B(Q) C(Q) N(Q) MB(Q) MC(Q)
MNB(Q)
100 1200 950 250 210 60 150
IA
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
_A
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
PP
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
a. Net benefits are maximized at Q = 107.
RO
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
VE
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.
D?
b. Since this decreases the opportunity cost of getting an M.B.A., one would expect
more students to apply for admission into M.B.A. Programs.
8.
Page 2 Michael R. Baye & Jeffrey T. Prince
Copyright © 2022 by McGraw-Hill Education.
All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Managerial Economics
and Business Strategy
ST
10th Edition
UV
SOLUTIONS
IA
MANUAL
_A
PP
Michael Baye, Jeff Prince
RO
Comprehensive Solutions Manual for Instructors
and Students
||| ||| || ||| || | || ||| | || ||| |
VE
9781260940541
© Michael Baye & Jeff Prince. All rights reserved. Reproduction or
distribution without permission is prohibited.
D?
© MEDGEEK
, TABLE OF CONTENTS
Solutions Manual – Managerial Economics and Business Strategy (10th Edition)
Authors: Michael Baye and Jeff Prince
ISBN: 9781260940541
ST
PART I: THE FUNDAMENTALS OF MARKET ANALYSIS
Chapter 1: The Fundamentals of Managerial Economics
Chapter 2: Market Forces: Demand and Supply
UV
Chapter 3: Quantitative Demand Analysis
Chapter 4: The Theory of Individual Behavior
PART II: PRODUCTION AND COST ANALYSIS
Chapter 5: The Production Process and Costs
IA
Chapter 6: The Organization of the Firm
PART III: MARKET STRUCTURE AND STRATEGY
_A
Chapter 7: The Nature of Industry
Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Chapter 9: Basic Oligopoly Models
Chapter 10: Game Theory: Inside Oligopoly
PP
PART IV: ADVANCED TOPICS IN STRATEGY
Chapter 11: Pricing Strategies for Firms with Market Power
Chapter 12: The Economics of Information
RO
VE
D?
, COMPLETE SOLUTION MANUAL FOR
Managerial Economics and Business Strategy 10th Edition
By Michael Baye, Jeff Prince
ST
Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
UV
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.
IA
2. The maximum you would be willing to pay for this asset is the present value, which is
_A
3.
a. Net benefits are N(Q) = 20 + 24Q – 4Q2.
PP
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.
RO
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.
VE
a. The value of the firm before it pays out current dividends is
( )
D?
.
b. The value of the firm immediately after paying the dividend is
Managerial Economics and Business Strategy, 10e Page 1
Copyright © 2022 by McGraw-Hill Education.
All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, ( )
.
5. The present value of the perpetual stream of cash flows. This is given by
ST
6. The completed table looks like this:
UV
Marginal
Control Total Total Net Marginal Marginal
Net
Variable Benefits Cost Benefits Benefit Cost
Benefit
Q B(Q) C(Q) N(Q) MB(Q) MC(Q)
MNB(Q)
100 1200 950 250 210 60 150
IA
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
_A
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
PP
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
a. Net benefits are maximized at Q = 107.
RO
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
VE
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.
D?
b. Since this decreases the opportunity cost of getting an M.B.A., one would expect
more students to apply for admission into M.B.A. Programs.
8.
Page 2 Michael R. Baye & Jeffrey T. Prince
Copyright © 2022 by McGraw-Hill Education.
All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
