Question: Suppose demand and supply are given by: /

> Provide an intuitive explanation for why a “buy one, get one free” deal is not the same as a “half-price” sale.

> Suppose the own price elasticity of demand for good X is −5, its income elasticity is −1, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3. Determine how much the consumption of this good will change if

> Suppose a research report has estimated the demand for a firm’s product as, a. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unitary elastic. b. Determine the cross-price elasticity of

> Using regression analysis on data from a field experiment, the demand curve for a product is estimated to be Qx d = 1,200 − 3 Px − 0.1 Pz, where Pz = $300. a. What is the own price elasticity of demand when Px = $140? Is demand elastic or inelastic at th

> Answer the following questions based on the accompanying diagram. a. How much would the firm’s revenue change if it lowered the price from $12 to $10? Is demand elastic or inelastic in this range? b. How much would the firmâ€

> Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of

> The owner of a small chain of gasoline stations in a large Midwestern town read an article in a trade publication stating that the own price elasticity of demand for gasoline in the United States is −0.2. Because of this highly inelastic demand in the Un

> Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those a

> Suppose that News Corp., which controls the United States’ largest satellite-to-TV broadcaster, is contemplating launching a Spaceway satellite that could provide high-speed Internet service. Prior to launching the Spaceway satellite, suppose that News C

> With milk sales sagging of late, The Milk Processor Education Program (MPEP) decided to move on from the famous “Got Milk” ad slogan in favor of a new one, “Milk Life.” The new tagline emphasizes milk’s nutritional benefits, including its protein content

> Suppose the Kalamazoo Brewing Company (KBC) currently sells its microbrews in a seven-state area: Illinois, Indiana, Michigan, Minnesota, Mississippi, Ohio, and Wisconsin. The company’s data analytics department has collected data from its distributors i

> As the owner of Barney’s Broilers—a fast-food chain—you see an increase in the demand for broiled chicken as consumers become more health conscious and reduce their consumption of beef and fried foods. As a result, you believe it is necessary to purchase

> As newly appointed “Energy Czar,” your goal is to reduce the total demand for residential heating fuel in your state. You must choose one of three legislative proposals designed to accomplish this goal: (a) a tax that

> You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 40 percent of your revenues, which grow about 2 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has

> You are a division manager at Toyota. If your data analytics department estimates that the semiannual demand for the Highlander is Q = 150,000 − 1.5P, what price should you charge in order to maximize revenues from sales of the Highlander?

> If Starbucks’s data analytics department estimates the income elasticity of demand for its coffee to be 1.6, how will the prospect of an economic boom (expected to increase consumers’ incomes by 3 percent over the next year) impact the quantity of coffee

> Nationwide Bank has approached Hometown Bank with a proposal to merge. The following table lists the sales of the banks in the area. Use this information to calculate the four-firm concentration ratio and the Herfindahl-Hirschman index. Based on the FTC

> For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 4 percent. If, as a result of this price increase, the volume of all cereal sold by Big G dropped by 5 percent, what can you infer about the own price e

> You are the manager of a firm that sells a leading brand of alkaline batteries. A file named Q03-12.xls with data on the demand for your product is available online at www.mhhe.com/baye10e. Specifically, the file contains data on the natural logarithm of

> Revenue at a major smart phone manufacturer was $2.3 billion for the nine months ending March 2, up 77 percent over revenues for the same period last year. Management attributes the increase in revenues to a 122 percent increase in shipments, despite a 3

> The demand function for good X is ln Qx d = a + b ln Px + c ln M + e, where Px is the price of good X and M is income. Least squares regression reveals that â = 7.42, bˆ = −2.18, and ĉ = 0.34. (LO5, LO6) a. If M = 55,000 and Px = 4.39, compute the own pr

> The demand function for good X is Qx d = a + bPx + cM + e, where Px is the price of good X and M is income. Least squares regression reveals that â = 8.27, bˆ = −2.14, ĉ = 0.36, σâ = 5.32, σ bˆ = 0.41, and σĉ = 0.22. The R-squared is 0.35. (LO6) a. Compu

> Suppose the true inverse demand relation for good X is Qx d = a + bPx + cM + e, and you estimated the parameters to be â = 22, bˆ = −1.8, σâ = 2.5, and σ bˆ = 0.7. Find the approximate 95 percent confidence interval for the true values of a and b.

> An econometrics expert from your firm used a linear demand specification to estimate the demand for its product and sent you a hard copy of the results. a. Based on these estimates, write an equation that summarizes the demand for the firmâ€&#

> You are the manager of a firm that receives revenues of $20,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is −3 and the cross-price elasticity of demand between products Y and X is −1.6.

> Suppose the cross-price elasticity of demand between goods X and Y is 2. How much would the price of good Y have to change in order to increase the consumption of good X by 50 percent?

> The demand for good X is given by, Research shows that the prices of related goods are given by Py = $6,500 and Pz = $100, while the average income of individuals consuming this product is M = $70,000. (LO1) a. Indicate whether goods Y and Z are substit

> Which of the following would most likely be scrutinized under the FTC and DOJ Horizontal Merger Guidelines? a. Two major players in Internet services and retailing—Amazon.com and eBay— merge. b. Cigarette maker Philip Morris merges with the Molson Coors

> After seven years of negotiations, 12 countries—including the United States, Japan, Vietnam, and nine other Pacific Rim countries—crafted the Trans-Pacific Partnership (TPP). A key feature of the TPP was the lifting of tariffs on many products traded bet

> Suppose the supply function for product X is given by Qx s = −30 + 2Px − 4Pz. (LO1) a. How much of product X is produced when Px = $600 and Pz = $60? b. How much of product X is produced when Px = $80 and Pz = $60? c. Suppose Pz = $60. Determine the supp

> Good X is produced in a competitive market using input A. Explain what would happen to the supply of good X in each of the following situations: (LO1, LO4) a. The price of input A decreases. b. An excise tax of $3 is imposed on good X. c. An ad valorem t

> The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name Y. Good Y is an inferior good. (LO1) a. How will the demand for good X change if consumer incomes decrease

> In a recent speech, the governor of your state announced: “One of the biggest causes of juvenile delinquency in this state is the high rate of unemployment among 16 to 19 year olds. The low wages offered by employers in the state have given fewer teenage

> Florida, like several other states, has passed a law that prohibits “price gouging” immediately before, during, or after the declaration of a state of emergency. Price gouging is defined as “selling necessary commodities such as food, gas, ice, oil, and

> Seventy-two percent of the members of the United Food and Commercial Workers Local 655 voted to strike against Stop ’n Shop in the St. Louis area. In fear of similar union responses, two of Stop ’n Shop’s larger rivals in the St. Louis market—Dierberg’s

> Viking InterWorks is one of many manufacturers that supply memory products to original equipment manufacturers (OEMs) of desktop systems. The CEO recently read an article in a trade publication that reported the projected demand for desktop systems to be

> Rapel Valley in Chile is renowned for its ability to produce high-quality wine at a fraction of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the Unit

> From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $10 million in withdrawals from other banks’ ATM machines. On average, noncustomer

> G.R. Dry Foods Distributors specializes in the wholesale distribution of dry goods, such as rice and dry beans. The firm’s manager is concerned about an article he read in this morning’s Wall Street Journal indicating that the incomes of individuals in t

> Firms like Papa John’s, Domino’s, and Pizza Hut sell pizza and other products that are differentiated in nature. While numerous pizza chains exist in most locations, the differentiated nature of these firms’ products permits them to charge prices above m

> You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and compliance costs. Moreover, depending on the locale, telec

> As a result of increased tensions in the Middle East, oil production is down by 1.21 million barrels per day—a 5 percent reduction in the world’s supply of crude oil. Explain the likely impact of this event on the market for gasoline and the market for s

> You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americans contract HIV each year through blood transfusions. Although every pint

> Some have argued that higher cigarette prices do not deter smoking. While there are many arguments both for and against this view, some find the following argument to be the most persuasive of all: “The laws of supply and demand indicate that higher pric

> You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose t

> You are the manager of a midsized company that assembles personal computers. You purchase most components—such as random access memory (RAM)—in a competitive market. Based on your marketing research, consumers earning over $80,000 purchase 1.5 times more

> Consider a market where supply and demand are given by Qx s = −14 + Px and Qx d = 85 − 2Px. Suppose the government imposes a price floor of $38 and agrees to purchase and discard any and all units consumers do not buy at the floor price of $38 per unit.

> The supply curve for product X is given by Qx s = −380 + 20Px. a. Find the inverse supply curve. b. How much surplus do producers receive when Qx = 460? When Qx = 1,100?

> Use the accompanying graph to answer these questions. a. Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price? b. Suppose demand is D and supply is S0. If a price support of $1

> Forey Inc. competes against many other firms in a highly competitive industry. Over the last decade, several firms have entered this industry and, as a consequence, Forey is earning a return on investment that roughly equals the interest rate. Furthermor

> Suppose demand and supply are given by Qd = 60 − P and Qs = P − 20. a. What are the equilibrium quantity and price in this market? b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $50 is impo

> The demand curve for product X is given by Qx d = 500 − 4Px. (LO2) a. Find the inverse demand curve. b. How much consumer surplus do consumers receive when Px = $50? c. How much consumer surplus do consumers receive when Px = $35? d. In general, what hap

> Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the following equations: B(Q) = 100 + 36Q − 4Q2 and C(Q) = 80 + 12Q. [Note: MB(Q) = 36 − 8Q and MC(Q) = 12.] (LO1, LO6, LO7) a. Write out the equation fo

> What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8 percent?

> Southwest Airlines begins a “Bags Fly Free” campaign, charging no fees for the first and second checked bags. Does this situation best represent producer–producer rivalry, consumer rivalry, or consumer–producer rivalry? Explain.

> As the manager of a focus group company, you are interested in optimizing the number of participants you include in focus groups for your clients. Over the past year, you ran a field experiment, varying the number of participants you provided for each fo

> Analysts at a digital marketing firm collected data on the firm’s extent of website analysis (X), along with the cost per customer (C), and the ad revenue per customer (R). Using regression analysis, the analysts produced the following

> Last year, MedSupplies—a national supplier of medical devices—posted its first loss in six years. The loss was a surprise to investors because the industry as a whole has been growing. Analysts have reached a consensus

> Two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6,000 per month; under the new plan, she receives 2 percent of

> You are the manager of Local Electronics Shop (LES), a small brick-and-mortar retail camera and electronics store. One of your employees proposed a new online strategy whereby LES lists its products at Pricesearch.com—a price comparison website that allo

> You work at a firm on Wall Street that specializes in mergers, and you are the team leader in charge of getting approval for a merger between two major beer manufacturers in the United States. While Table 7–2 in the text indicates that the four-firm conc

> Recently, European Union (EU) governments approved a five-year EU trade protection against grain-oriented electrical steel (GOES) from Russia, Japan, China, South Korea, and the United States. The protection would consist of minimum import prices on ship

> According to The Wall Street Journal, merger and acquisition activity in the first quarter rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred between information technologies (IT) companies. The largest IT transactio

> You are the manager in charge of global operations at Bank Global—a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new advertising campaign in the U.S. market. Y

> Suppose one of your clients is four years away from retirement and has only $2,500 in pretax income to devote to either a Roth or traditional IRA. The traditional IRA permits investors to contribute the full $2,500 since contributions to these accounts a

> The head of the accounting department at a major software manufacturer has asked you to put together a pro forma statement of the company’s value under several possible growth scenarios and the assumption that the company’s many divisions will remain a s

> As a marketing manager for one of the world’s largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared the accompanying table, which summarize

> Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech co

> Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smart phones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With

> You are the human resources manager for a famous retailer and are trying to convince the president of the company to change the structure of employee compensation. Currently, the company’s retail sales staff is paid a flat hourly wage of $20 per hour for

> You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $1,600 and will save you $40 in electricity costs at the end of each of the next five years.

> The four-firm concentration ratios for industries X and Y are 81 percent and 74 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 3,100 and 1,600. The Dansby-Willig performance index for industry X is 0.7, while that for ind

> You have recently learned that the company where you work is being sold for $500,000. The company’s income statement indicates current profits of $25,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” inde

> An owner can lease her building for $150,000 per year for three years. The explicit cost of maintaining the building is $50,000, and the implicit cost is $65,000. All revenues are received, and costs borne, at the end of each year. If the interest rate i

> Suppose the total benefit derived from a continuous decision, Q, is B(Q) = 20Q − 2Q2 and the corresponding total cost is C(Q) = 4 + 2Q2, so that MB(Q) = 20 − 4Q and MC(Q) = 4Q. a. What is total benefit when Q = 2? Q = 10? b. What is marginal benefit when

> Jaynet spends $30,000 per year on painting supplies and storage space. She recently Received two job offers from a famous marketing firm—one offer was for $110,000 per year and the other was for $80,000. However, she turned both jobs down to continue a p

> It is estimated that over 100,000 students will apply to the top 30 MBA programs in the United States this year. a. Using the concept of net present value and opportunity cost, explain when it is rational for an individual to pursue an MBA degree. b. Wha

> Complete the accompanying table and answer the accompanying questions. a. At what level of the control variable are net benefits maximized? b. What is the relation between marginal benefit and marginal cost at this level of the variable?

> What is the value of a preferred stock that pays a perpetual dividend of $120 at the end of each year when the interest rate is 3 percent?

> A firm’s current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 2 percent. If the firm’s opportunity cost of funds is 4 percent, determine the value of the firm: (LO5, LO7) a. The instant before it pays

> Your store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower price. a. What is the consumerâ&#12

> For each of the following scenarios, determine whether the decision maker is risk neutral, risk averse, or risk loving. a. A manager prefers a 20 percent chance of receiving $1,400 and an 80 percent chance of receiving $500 to receiving $680 for sure. b.

> Based on the information given, indicate whether the following industry is best characterized by the model of perfect competition, monopoly, monopolistic competition, or oligopoly. a. Industry A has a four-firm concentration ratio of 0.005 percent and a

> Consider the two options in the following table, both of which have random outcomes: a. Determine the expected value of each option. b. Determine the variance and standard deviation of each option. c. Which option is most risky?

> Prosecutors representing the Securities and Exchange Commission recently announced criminal charges against 13 individuals for engaging in insider trading. According to the SEC’s director of enforcement, a trading ring acting on inside information “compr

> Online MBA programs significantly reduce the cost to existing managers of obtaining an MBA, as they permit students to maintain their existing residence and employment while working toward an advanced degree in business. Based on your knowledge of the ec

> You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald’s or a Penn Station East Coast Subs franchise. McDonald’s indicates that, based on the location where you are proposing to open a new r

> Recently the pharmaceutical company Mylan attempted a hostile takeover of generic drugmaker Perrigo. Perrigo reported a net loss the year before the attempted takeover, which was partially driven by a spike in administrative expenses. Suppose that Mylan

> CPT Inc. is a local manufacturer of conveyor systems. Last year, CPT sold over $2 million worth of conveyor systems that netted the company $100,000 in profits. Raw materials and labor are CPT’s biggest expenses. Spending on structural steel alone amount

> Pelican Point Financial Group’s clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2.5 million. These investors seek unlimited access to investment consultants and

> This past year, Used Imported Autos sold very few cars and lost over $500,000. As a consequence, its manager is contemplating two strategies to increase its sales volume. The low cost strategy involves changing the dealership name to Quality Used Importe

> From the late 1990s through the early 2000s, more than 25 domestic steel companies filed for bankruptcy. A combination of low prices with strong competition by foreign competitors and so-called legacy costs of unions are cited as the primary reasons why

> Congress enacted the Health Insurance Portability and Accountability Act (HIPAA) to potentially help millions of employees gain access to group health insurance. The key provision of HIPAA requires insurance companies and health insurance plans administe

> Consider a firm that operates in a market that competes aggressively in prices. Due to the high fixed cost of obtaining the technology associated with entering this market, only a limited number of other firms exist. Furthermore, over 70 percent of the p

> BK Books is an online book retailer that also has 10,000 “bricks-and-mortar” outlets worldwide. You are a risk-neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top

> Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies. In contrast, credit card companies offer their customers a type of insurance called “credit life i

> As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this la

> The FCC has hired you as a consultant to design an auction to sell wireless spectrum rights. The FCC indicates that its goal of using auctions to sell these spectrum rights is to generate revenue. Since most bidders are large telecommunications companies

> Life insurance policies typically have clauses stipulating the insurance company will not pay claims arising from suicide for a specified term—typically two years from the date the policy was issued. Use precise economic terminology to explain the likely

> An advertisement in the local paper offers a “fully loaded” car that is only six months old and has only been driven 5,000 miles at a price that is 20 percent lower than the average selling price of a brand new car with the same options. Use precise econ