ECN 601 Topic 2 Problems; Chapters 4, 5, 6

Chapter 4 1. Question: Memorial Hospital's CEO conducted performance reviews of the hospital’s departments and discovered that the average cost of deliveries ($5,000) was above their average revenue, and that the hospital was losing $700 on each delivery. From the information on how much the hospital is losing on deliveries, what is the change in profit for each extra delivery? 2. Question: Georgetown Public Media is trying to determine the optimum amount for its advertising budget. Calculating the marginal revenue of adding another listener can be computed as the probability of becoming a member times the revenue expected from each member. This is a crude estimate, but it is the only information we have. Using the following spreadsheet, calculate the optimal level of advertising. What is it? 3. Question: Managers often have to decide between two competing strategies to achieve the same end. Which of the following statements is true? 4. Question: When might an effort-based incentive scheme not work? 5. Question: What company would a rational actor rather work for? Chapter 5 1. Question: Regarding compounding, discounting and the rule of 72, which of the following statements is incorrect? 2. Question: Regarding compounding and discounting, which of the following statements is/are true? 3. Question: Re Break-even analysis, which of the following statements is false? 4. Question: To determine whether investments are profitable, follow these steps: 5. Question: John Deere's choice of competing technologies teaches us that: 6. Question: Which of the following statements is correct? 7. Question: Suppose you are advising a regional commercial printer, who is negotiating with a national magazine. For them, using a regional printer reduces shipping costs, but to take on the work, the regional printer must purchase a $12 million rotogravure printing press, which has no resale value. Assume $8 is the average cost of printing one million copies per year over a two-year period. Now suppose that the magazine accepts your offer, and immediately hands you a purchase order for $8,000,000, for the first-year production. Do you accept the purchase order? 8. Question: If you suspect that the magazine may try to hold you up during the second year of the contract, how much should you ask for in the first year? Chapter 6 1. Question:To compute price, we need: 2. Question:Which of the following make demand more elastic? 3. Question:Suppose you're trying to compare the year-to-year performance of one of your regional salespeople over a period during which income grew by 3%. If demand for your products has an income elasticity of 2, how would you measure the salesperson's performance? 4. Question:Jim has estimated elasticity of demand for gasoline to be -0.7 in the short run and -i.8 in the long run. A decrease in taxes on gasoline would 5. Question:Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value, 6. Question:Jim recently graduated from college. His income increased tremendously from $5,000 a year to $6o,00o a year. Jim decided that instead of renting he will buy a house. This implies that 7. Question:Which of the following goods has a negative income elasticity of demand? 8. Question:An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are 9. Question:Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if 10. Question:Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market? 11. Question:Which of the following is the reason for the edstence of consumer surplus? 12. Question:A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. The cookies are becoming more popular with customers, and so the bakery owner is considering raising the price to $2o/dozen. What percentage of customers must be retained to ensure that the price increase is profitable? 13. Question:Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is —3, how should you adjust price if you want to sell all of your output? 14. Question:George has been selling 8,000 T-shirts per month for $8.00. When he increased the price to $9.00, he sold only 7,000 T-shirts. Which of the following best approximates the price elasticity of demand? Before the price change, George's initial price markup over marginal cost was approximately _____ George's desired markup is _____. Since George's initial markup, or actual margin, was ____ than his desired margin, raising the price was _____