SOLUTION MANUAL FOR c c
ManagerialcEconomics,c9thcEditioncWilliamcF.cSamuelson,cStephencG.cMarks,cJaycL.cZagorsky
Answers to Ba
c c
ck-of-Chapter
Problems
Chapterc1
1. cManagerialceconomicsciscthecanalysiscofcimportantcmanagementcdecisionscusingcthecto
olscofceconomics.cMostcbusinesscdecisionscarecmotivatedcbycthecgoalcofcmaximizingcthec
firm‟scprofit.cThectoolscofcmanagerialceconomicscprovidecacguidectocprofit-
maximizingcdecisions.
2. i)cMultinationalcProductioncandcPricing.cThecglobalcautomobileccompanycneedscinfor
mationconc1)cdemandc(howcmanycvehiclesccancbecsoldcinceachcmarketcatcdifferentcprices)
,c2)cplantccapacitiescandcproductionccosts,candc3)ctradecbarrierscandctariffs.
ii) MarketcEntry.c RemembercthatcUbercbegancascacridesharingcidea,cbeforecultimatelycbeco
mingcacmarketcdisruptorcwithcrespectctoctheclongcestablishedctaxicabcindustry.cCrucialcnec
essarycinformationcandcquestionscinclude:cWouldccitycregulatorscallowcUberctocoperatecatc
all?cWhatcmarketcnichec(howcmuchcdemand)ccouldcitccarvecoutcofcthectaxicandccarcservicec
markets?cAtcwhatcpricescrelativectoctaxis?cWouldccustomersctrustcacridesharecservice?cHo
wcmanycdriversccouldcridesharecfirmscattractcandcatcwhatccosts?
iii) Buildingc acNewcBridge.c Thecauthoritycshouldcestimatecusagecofcthecbridgecovercitscus
efulclife,ctheclikelyccostcofcbuildingcandcmaintainingcthecbridge,candcothercimportantcside
-effects,cprocandcconc--
cincludingcpositiveceffectsconcbusinesscactivitycandcthecimpactsconcaircpollutioncandctraf
ficccongestion.
iv) Ac RegulatorycProblem.c Beforecdecidingcwhetherctocpromotecthecoil-to-
coalcconversion,cgovernmentcregulatorscneedcinformationconchowcmuchcoilcwouldcbecsav
edc(andcthecdollarcvaluecofcsavings)candctheccostcofcthecchaincofcside-effectsc--
cnotconlycthecdirect ccostcofcelectricitycprovisioncbutcalsocpollutionccostscandcenvironmenta
lcdamage.
, v) Boeingcandcthec737cMax.c Boeingcgatheredcextensivecinformationconcpotentialcairlinecde
mandcforcacnewcmorecfuel-
efficientcaircraft,cyetcconsiderablecuncertaintycremainedcwithcrespectctocfuturecorders.cWo
uldcthecnewcaircraftcshiftcsignificantcorderscandcsalescfromcAirbus,cBoeing‟sclongtimecrival
?cCouldcBoeingcachievecitscaggressivecR&Dcandcproductioncplanconcbudgetcandconcschedu
le?cCouldcitcaddresscandcsolvecmyriadcreliabilitycandcsafetycproblems,cbigcandcsmall?cHowc
severecwouldcbecongoingcregulatorycoversightcandchowchighcacbarcwouldcthecFAAcsetcforcc
ertificationcrequirements?cFivecorctencyearscfromcnow,cwouldcthecworldceconomyccontinue
ctocgrow,cfuelingcstrongcdemandcforcairctravelcandcforcthecnewcandcimprovedcaircraft?
vi) AncR&DcDecision.c Thecpharmaceuticalccompanycshouldcquizcitscscientistsconcthecchanc
escofcsuccessc(andcthectimetablecforccompletion)cforceachcR&Dcapproach.c Theccompany'sc
marketingcdepartmentcwouldcsupplycestimatescofcpossiblecrevenuescfromcthecdrug;citscpro
ductioncdepartmentcwouldcestimatecpossibleccosts.
vii) DavidcLetterman.c Davecmustccarefullycassesscwhatchecwantscfromcacnewccontractc(incpar
ticularchowcmuchchecvaluescthecearlierctimecslot).cAscthecnegotiationscunfold,cDavecwillcgl
eancvaluablecinformationcasctoctheccurrentccompetingcofferscofcCBScandcNBC.cOfccourse,c
Davecmustcalsoctryctocassesschowcfarcthectwocnetworkscmightcbecwillingctocgocincsweetenin
gctheircoffers.
3. Thecsixcstepscmightcleadcthecsoft-
drinkcfirmctocconsidercthecfollowingcquestions.cStepc1:cWhatcisctheccontext?cIscthiscthecfirm
‟scfirstcsuchcsoftcdrink?cWillcitcbecfirstctocthecmarketplace,corciscitcimitatingcaccompetitor?cS
tepc2:cWhatciscthecprofitcpotentialcforcsuchcacdrink?cWouldcthecdrinkcachievecothercobjectiv
es?cIscthecfruitcdrinkccomplementaryctocthecfirm‟scothercproducts?cWouldcitcenhancecthecfir
m‟scimage?cStepc3:cWhichcofcsixcversionscofcthecdrinkcshouldcthecfirmcintroduce?cWhenc(n
owcorclater)candcwherec(regionally,cnationally,corcinternationally)cshouldcitcintroducecthecd
rink?cWhatciscancappropriatecadvertisingcandcpromotioncpolicy?cStepc4:cWhatcarecthecfirm‟
scprofitcforecastscforcthecdrinkcincitscfirst,csecond,candcthirdcyears?cWhatcarecthecchancesctha
tcthecdrinkcwillcbecacfailurecafterc15cmonths?cShouldcthecfirmctestcmarketcthecdrinkcbeforecla
unchingcit?cStepc5:cBasedconcthecanswersctocthecquestionscincStepsc1cthroughc4,cwhatciscthecf
irm‟scmostcprofitableccoursecofcaction?cStepc6:cInclightcofcexpectedc(orcunexpected)cdevelo
pmentscincthecfirstcyearcofctheclaunch,chowcshouldcthecfirmcmodifycitsccoursecofcaction?
,
, 4. Decisioncvignettes
a. Accouplecwhocbuycthecfirstchousectheycviewchavecprobablycsampledctoocfewchouses.cHousi
ngcmarketscarecnotoriouslycimperfect.c Housesccomecincvariouscshapes,csizes,cconditions,cn
eighborhoods,candcprices.c Personalcpreferencescforchousescalsocvarycenormously.c Thecco
uplecisclikelyctocgetcac"better"chousecforcthemselvescifctheycviewcacdozen,ctwocdozen,corcmo
rechousescoverctheccoursecofctimecbeforecbuyingctheirc"most-
preferred"chousecfromctheclot.cCircumstancescjustifyingcthecfirst-housecpurchasecinclude:
(1)cthechouseciscsocgoodcthatcviewingcothersciscacwastecofctime,c(2)cthechouseciscsocgoodcandct
heccommitmentcmustcbecmadecnowcorcanothercbuyercwillcclaimcthechouse,c(3)ctheccouplecm
ustcbuycnowc(acjobctransferchascbroughtcthemctocthecareacandcschoolscopenctomorrow),c(4)ct
heycalreadychavecfullcinformationcaboutcthectypescofcotherchousescavailablec(thecwife'scbestc
friendciscacrealcestatecagent).
b. Theccompanycseemsctocbeclaunchingcthecproductctocavoidc“wasting”cthec$6cmillioncalreadyc
spentcincdevelopment.c Thisc"sunk"ccostciscirrelevantcandcshouldcbecignored.cWhatcdoescmat
tercforcthecreinvestmentcdecisioncarecthecfuturecrevenuescandccostscofccontinuing.c (Reinvest
cifcthecnetcpresentcvaluecofcfuturecprofitsciscpositive.)c Somec"close-to-
home"cexamplescofcthecsunkccostcfallacy:ci)cAcfellowcpaysc$250cforcacyear-
longctenniscmembershipcbutcdevelopscseverectenniscelbowcafterctwocmonths.c Heccontinuesc
tocplaycincgreatcpaincincorderctocgetchiscmoney'scworth.cii)cMs.cKchascacsubscriptionctocacserie
scofc sixcplayscforc$150.c Shecbravescacsnowcstormcsocascnotctocwastecthec$25ccost.c Oncreflect
ion,cshecadmitscthatcshecwouldn'tchavecgonechadcshecbeencgivencthecticketcforcfree.
c. It'scincthecindividualcmotorist'scbestcinterestctocdrivecon.c (Stoppingciscriskycandcinconvenie
nt).c Butcit'scinctheccollectivecinterestcofcallcthecdelayedcmotoristsctochavecsomeonecstopcandc
movecthecmattress.c Here'scancexamplecofcthecpotentialcconflictcbetweencprivatecandcpublicc
interestsc(betweencprivatecprofitcandcsocialcwelfare).c Incsuchccircumstances,cthereciscacpote
ntialcrolecforcgovernmentcintervention.
d. Allowingcthecusecofcthalidomidechadcacdisastrouscoutcomecandcmorecimportantlycwascacb
adcdecisionc(besidescitscpotentialcrisk,cthecdrugcwascofcquestionablecbenefitcincaidingcslee
p).c Thecthalidomidecdisastercpromptedcacmuchctoughercstancectowardcpriorcdrugctestingci
ncthecU.S.candcelsewhere.
ManagerialcEconomics,c9thcEditioncWilliamcF.cSamuelson,cStephencG.cMarks,cJaycL.cZagorsky
Answers to Ba
c c
ck-of-Chapter
Problems
Chapterc1
1. cManagerialceconomicsciscthecanalysiscofcimportantcmanagementcdecisionscusingcthecto
olscofceconomics.cMostcbusinesscdecisionscarecmotivatedcbycthecgoalcofcmaximizingcthec
firm‟scprofit.cThectoolscofcmanagerialceconomicscprovidecacguidectocprofit-
maximizingcdecisions.
2. i)cMultinationalcProductioncandcPricing.cThecglobalcautomobileccompanycneedscinfor
mationconc1)cdemandc(howcmanycvehiclesccancbecsoldcinceachcmarketcatcdifferentcprices)
,c2)cplantccapacitiescandcproductionccosts,candc3)ctradecbarrierscandctariffs.
ii) MarketcEntry.c RemembercthatcUbercbegancascacridesharingcidea,cbeforecultimatelycbeco
mingcacmarketcdisruptorcwithcrespectctoctheclongcestablishedctaxicabcindustry.cCrucialcnec
essarycinformationcandcquestionscinclude:cWouldccitycregulatorscallowcUberctocoperatecatc
all?cWhatcmarketcnichec(howcmuchcdemand)ccouldcitccarvecoutcofcthectaxicandccarcservicec
markets?cAtcwhatcpricescrelativectoctaxis?cWouldccustomersctrustcacridesharecservice?cHo
wcmanycdriversccouldcridesharecfirmscattractcandcatcwhatccosts?
iii) Buildingc acNewcBridge.c Thecauthoritycshouldcestimatecusagecofcthecbridgecovercitscus
efulclife,ctheclikelyccostcofcbuildingcandcmaintainingcthecbridge,candcothercimportantcside
-effects,cprocandcconc--
cincludingcpositiveceffectsconcbusinesscactivitycandcthecimpactsconcaircpollutioncandctraf
ficccongestion.
iv) Ac RegulatorycProblem.c Beforecdecidingcwhetherctocpromotecthecoil-to-
coalcconversion,cgovernmentcregulatorscneedcinformationconchowcmuchcoilcwouldcbecsav
edc(andcthecdollarcvaluecofcsavings)candctheccostcofcthecchaincofcside-effectsc--
cnotconlycthecdirect ccostcofcelectricitycprovisioncbutcalsocpollutionccostscandcenvironmenta
lcdamage.
, v) Boeingcandcthec737cMax.c Boeingcgatheredcextensivecinformationconcpotentialcairlinecde
mandcforcacnewcmorecfuel-
efficientcaircraft,cyetcconsiderablecuncertaintycremainedcwithcrespectctocfuturecorders.cWo
uldcthecnewcaircraftcshiftcsignificantcorderscandcsalescfromcAirbus,cBoeing‟sclongtimecrival
?cCouldcBoeingcachievecitscaggressivecR&Dcandcproductioncplanconcbudgetcandconcschedu
le?cCouldcitcaddresscandcsolvecmyriadcreliabilitycandcsafetycproblems,cbigcandcsmall?cHowc
severecwouldcbecongoingcregulatorycoversightcandchowchighcacbarcwouldcthecFAAcsetcforcc
ertificationcrequirements?cFivecorctencyearscfromcnow,cwouldcthecworldceconomyccontinue
ctocgrow,cfuelingcstrongcdemandcforcairctravelcandcforcthecnewcandcimprovedcaircraft?
vi) AncR&DcDecision.c Thecpharmaceuticalccompanycshouldcquizcitscscientistsconcthecchanc
escofcsuccessc(andcthectimetablecforccompletion)cforceachcR&Dcapproach.c Theccompany'sc
marketingcdepartmentcwouldcsupplycestimatescofcpossiblecrevenuescfromcthecdrug;citscpro
ductioncdepartmentcwouldcestimatecpossibleccosts.
vii) DavidcLetterman.c Davecmustccarefullycassesscwhatchecwantscfromcacnewccontractc(incpar
ticularchowcmuchchecvaluescthecearlierctimecslot).cAscthecnegotiationscunfold,cDavecwillcgl
eancvaluablecinformationcasctoctheccurrentccompetingcofferscofcCBScandcNBC.cOfccourse,c
Davecmustcalsoctryctocassesschowcfarcthectwocnetworkscmightcbecwillingctocgocincsweetenin
gctheircoffers.
3. Thecsixcstepscmightcleadcthecsoft-
drinkcfirmctocconsidercthecfollowingcquestions.cStepc1:cWhatcisctheccontext?cIscthiscthecfirm
‟scfirstcsuchcsoftcdrink?cWillcitcbecfirstctocthecmarketplace,corciscitcimitatingcaccompetitor?cS
tepc2:cWhatciscthecprofitcpotentialcforcsuchcacdrink?cWouldcthecdrinkcachievecothercobjectiv
es?cIscthecfruitcdrinkccomplementaryctocthecfirm‟scothercproducts?cWouldcitcenhancecthecfir
m‟scimage?cStepc3:cWhichcofcsixcversionscofcthecdrinkcshouldcthecfirmcintroduce?cWhenc(n
owcorclater)candcwherec(regionally,cnationally,corcinternationally)cshouldcitcintroducecthecd
rink?cWhatciscancappropriatecadvertisingcandcpromotioncpolicy?cStepc4:cWhatcarecthecfirm‟
scprofitcforecastscforcthecdrinkcincitscfirst,csecond,candcthirdcyears?cWhatcarecthecchancesctha
tcthecdrinkcwillcbecacfailurecafterc15cmonths?cShouldcthecfirmctestcmarketcthecdrinkcbeforecla
unchingcit?cStepc5:cBasedconcthecanswersctocthecquestionscincStepsc1cthroughc4,cwhatciscthecf
irm‟scmostcprofitableccoursecofcaction?cStepc6:cInclightcofcexpectedc(orcunexpected)cdevelo
pmentscincthecfirstcyearcofctheclaunch,chowcshouldcthecfirmcmodifycitsccoursecofcaction?
,
, 4. Decisioncvignettes
a. Accouplecwhocbuycthecfirstchousectheycviewchavecprobablycsampledctoocfewchouses.cHousi
ngcmarketscarecnotoriouslycimperfect.c Housesccomecincvariouscshapes,csizes,cconditions,cn
eighborhoods,candcprices.c Personalcpreferencescforchousescalsocvarycenormously.c Thecco
uplecisclikelyctocgetcac"better"chousecforcthemselvescifctheycviewcacdozen,ctwocdozen,corcmo
rechousescoverctheccoursecofctimecbeforecbuyingctheirc"most-
preferred"chousecfromctheclot.cCircumstancescjustifyingcthecfirst-housecpurchasecinclude:
(1)cthechouseciscsocgoodcthatcviewingcothersciscacwastecofctime,c(2)cthechouseciscsocgoodcandct
heccommitmentcmustcbecmadecnowcorcanothercbuyercwillcclaimcthechouse,c(3)ctheccouplecm
ustcbuycnowc(acjobctransferchascbroughtcthemctocthecareacandcschoolscopenctomorrow),c(4)ct
heycalreadychavecfullcinformationcaboutcthectypescofcotherchousescavailablec(thecwife'scbestc
friendciscacrealcestatecagent).
b. Theccompanycseemsctocbeclaunchingcthecproductctocavoidc“wasting”cthec$6cmillioncalreadyc
spentcincdevelopment.c Thisc"sunk"ccostciscirrelevantcandcshouldcbecignored.cWhatcdoescmat
tercforcthecreinvestmentcdecisioncarecthecfuturecrevenuescandccostscofccontinuing.c (Reinvest
cifcthecnetcpresentcvaluecofcfuturecprofitsciscpositive.)c Somec"close-to-
home"cexamplescofcthecsunkccostcfallacy:ci)cAcfellowcpaysc$250cforcacyear-
longctenniscmembershipcbutcdevelopscseverectenniscelbowcafterctwocmonths.c Heccontinuesc
tocplaycincgreatcpaincincorderctocgetchiscmoney'scworth.cii)cMs.cKchascacsubscriptionctocacserie
scofc sixcplayscforc$150.c Shecbravescacsnowcstormcsocascnotctocwastecthec$25ccost.c Oncreflect
ion,cshecadmitscthatcshecwouldn'tchavecgonechadcshecbeencgivencthecticketcforcfree.
c. It'scincthecindividualcmotorist'scbestcinterestctocdrivecon.c (Stoppingciscriskycandcinconvenie
nt).c Butcit'scinctheccollectivecinterestcofcallcthecdelayedcmotoristsctochavecsomeonecstopcandc
movecthecmattress.c Here'scancexamplecofcthecpotentialcconflictcbetweencprivatecandcpublicc
interestsc(betweencprivatecprofitcandcsocialcwelfare).c Incsuchccircumstances,cthereciscacpote
ntialcrolecforcgovernmentcintervention.
d. Allowingcthecusecofcthalidomidechadcacdisastrouscoutcomecandcmorecimportantlycwascacb
adcdecisionc(besidescitscpotentialcrisk,cthecdrugcwascofcquestionablecbenefitcincaidingcslee
p).c Thecthalidomidecdisastercpromptedcacmuchctoughercstancectowardcpriorcdrugctestingci
ncthecU.S.candcelsewhere.
