Question: You are the manager of a firm

> A firm produces output according to a production function Q = F(K, L) = min {4K, 4L}. a. How much output is produced when K = 2 and L = 3? b. If the wage rate is $60 per hour and the rental rate on capital is $40 per hour, what is the cost-minimizing inp

> Explain the difference between fixed costs, sunk costs, and variable costs. Provide an example that illustrates that these costs are, in general, different.

> A multiproduct firm’s cost function was recently estimated as, a. Are there economies of scope in producing 10 units of product 1 and 10 units of product 2? b. Are there cost complementarities in producing products 1 and 2? c. Suppose t

> In 2006, the five leading suppliers of digital cameras in the United States were Canon, Sony, Kodak, Olympus, and Samsung. The combined market share of these five firms was 60.9 percent. The leading firm was Canon, with a market share of 18.7 percent. Th

> A firm’s fixed costs for 0 units of output and its average total cost of producing different output levels are summarized in the following table. Complete the table to find the fixed cost, variable cost, total cost, average fixed cost,

> In the answer to Demonstration Problem 4–2 in the text, we showed a situation in which a gift certificate leads a consumer to purchase a greater quantity of an inferior good than he or she would consume if given a cash gift of equal value. Is this always

> A consumer must divide $600 between the consumption of product X and product Y. The relevant market prices are Px = $10 and Py = $40. (LO2) a. Write the equation for the consumer’s budget line. b. Illustrate the consumer’s opportunity set in a carefully

> A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5. (LO2, LO3) a. What is the price of good Y? b. What is the consumer’s income? c. At point A, how many units of good X does the consumer purcha

> A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5. (LO2) a. What is the market rate of substitution between goods X and Y? b. Illustrate the consumer’s opportunity set in a carefully labeled diag

> When trying to assess differences in her customers, Claire—the owner of Claire’s Rose Boutique—noticed a difference between the typical demand of her female versus her male customers. In particular, she found her female customers to be more price sensiti

> A large Coca-Cola vendor recently hired some economic analysts to assess the effect of a price increase in its 16-ounce bottles from $1.00 to $2.00. The analysts determined that, on average, the vendor’s customers spend about $15.00 on

> Recently, an Internet service provider (ISP) in the United Kingdom implemented a “ no-strings U.S.-style flat-rate plan” whereby its commercial subscribers can send and receive unlimited volume (measured in gigabytes) up to a cap of 10,000 gigabytes (per

> Over the past decade, holiday gift cards have become increasingly popular at online retailers. Not long ago, online shoppers had to really hunt at most e-retailers’ sites to purchase a gift card, but today it is easier to purchase gift cards online than

> Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and

> Recently, Pfizer and Allergan—the makers of Viagra and Botox, respectively—initiated a $160 billion merger. Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries. The government encourages these R&D

> Suppose that a CEO’s goal is to increase profitability and output from her company by bolstering its sales force, and data analysis has shown that the relationship between profits and output can be expressed as π = 40q − 2q2 (in millions of U.S. dollars)

> A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the United States for $15 per bottle if the consumer purchases up t

> The average 15-year-old purchases 100 song downloads from Apple Music and buys 20 cheese pizzas in a typical year. If cheese pizzas are inferior goods, would the average 15-year-old be indifferent between receiving a $50 gift card for Apple Music and $50

> The Einstein Bagel Corp. offers a frequent buyer program whereby a consumer receives a stamp each time she purchases one dozen bagels for $6. After a consumer accrues 10 stamps, she receives one dozen bagels free. This offer is an unlimited offer, valid

> An internal study at Mimeo Corporation—a manufacturer of low-end photocopiers—revealed that each of its workers assembles three photocopiers per hour and is paid $6 for each assembled copier. Although the company does not have the resources needed to sup

> Consider an employee who does not receive employer-based health insurance and must divide her $1,000 per week in after-tax income between health insurance and “other goods.” Draw this worker’s opportunity set if the price of health insurance is $200 per

> During the past major recession, upscale hotels in the United States recently cut their prices by 25 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that bu

> A recent newspaper circular advertised the following special on tires: “Buy three, get the fourth tire for free—limit one free tire per customer.” If a consumer has $360 to spend on tires and other goods and each tire usually sells for $40, how does this

> The U.S. government spends over $74 billion on its Supplemental Nutrition Assistance Program (SNAP) to provide millions of Americans with the means to purchase food. Beneficiaries use an Electronic Benefits Transfer (EBT) card to transfer their governmen

> It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a

> Suppose your analytics team was able to estimate the own price elasticity of market demand, ET, and the own price elasticity of demand for a representative firm's product, EF, for two industries. For agriculture, your team estimates that ET = −1.8 and EF

> A worker views leisure and income as “goods” and has an opportunity to work at an hourly wage of $16 per hour. (LO7) a. Illustrate the worker’s opportunity set in a given 24-hour period. b. Suppose the worker is always willing to give up $10 of income fo

> A consumer’s budget set for two goods (X and Y) is 800 ≥ 4X + 2Y. (LO2) a. Illustrate the budget set in a diagram. b. Does the budget set change if the prices of both goods double and the consumer’s income also doubles? Explain. c. Given the equation for

> Determine which, if any, of Properties 4–1 through 4–4 are violated by the indifference curves shown in the following diagram.

> A consumer must spend all of her income on two goods (X and Y). In each of the following scenarios, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good. a.

> In the following figure, a consumer is initially in equilibrium at point C. The consumer’s income is $600, and the budget line through point C is given by $600 = $100X + $200Y. When the consumer is given a $100 gift certificate that is

> 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

> 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

> Suppose demand and supply are given by: a. Determine the equilibrium price and quantity. Show the equilibrium graphically. b. Suppose a $12 excise tax is imposed on the good. Determine the new equilibrium price and quantity. c. How much tax revenue does

> 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