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BUSI 620 Entire Course Tutorials

FOR MORE CLASSES VISIT www.busi620mentor.com BUSI 620 Week 1 Questions for Critical Thinking 1 (SOLUTIONS) BUSI 620 Week 2 Questions for Critical Thinking 2 (SOLUTIONS) BUSI 620 Week 3 Questions For Critical Thinking 3 (SOLUTIONS) BUSI 620 Week 4 Questions for Critical Thinking 4 (SOLUTIONS) BUSI 620 Week 4 Test 1 (TWO DIFFERENT VERSIONS) BUSI 620 Week 5 Questions for Critical Thinking 5 (SOLUTIONS) BUSI 620 Week 6 Questions for Critical Thinking 6 (SOLUTIONS) BUSI 620 Week 7 Questions for Critical Thinking 7 (SOLUTIONS) BUSI 620 Week 8 Test 2 (100 % Score)


BUSI 620 Week 1 Discussion Board 1 BUSI 620 Week 2 Discussion Board 2 BUSI 620 Week 3 Discussion Board 3 BUSI 620 Week 4 Discussion Board 4 BUSI 620 Week 5 Discussion Board 5 BUSI 620 Week 6 Discussion Board 6 BUSI 620 Research Paper (2 Papers) ============================================= =

BUSI 620 Research Paper (2 Papers)

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Topic 1: Electronic Commerce Topic 2: ECONOMIC IMPACT OF MINIMUM WAGE INCREASE


Choose 1 of the following 2 options for your Research or Interview Paper. Your paper will be at least 7 double-spaced pages for the main content (not including the cover page and reference page). Your choices include:

A research paper Steps for writing the research paper: a) Choose a topic in managerial economics. b) Submit the topic and the outline of the paper to the instructor anytime for approval. c) A minimum of 3 references besides the textbook are required. Liberty University library has excellent resources for your search for journals. ==============================================

BUSI 620 Week 1 Questions for Critical Thinking 1

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Critical Thinking One Salvatore’s Chapter 1: Discussion Questions: 9. Problems: 6, 9,15 and spreadsheet problem (p.37)

Froeb et al.’s Chapter 3: a. Individual problems: 3-1 and 3-3.

Salvatore’s Chapter 3: a. Discussion Questions: 9. b. Problems: 1(a), 7, and 9.

Froeb et al.’s Chapter 4: a. Individual problems: 4-5 and 4-6.

Discussion Question 9: How is the concept of a normal return on investment related to the distinction between business and economic profit?


Problem 6: Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20 percent. Problem 9: A woman managing a photocopying establishment for $25,000 per year decides to open her own duplicating place. Her revenue during the first year of operations is $120,000 and her expenses are as follows:

Salaries to hired help 45,000 Supplies 15,000 Rent 10,000 Utilities 1,000 Interest on bank loan 10,000

Calculate (a) Explicit Costs, (b) Implicit Costs, (c) Business Profit, (d) Economic Profit, and (e) Normal Return on Investment.


Spreadsheet Problem: Using the data below, where column A represents student numbers, column B the finishing time for a 1 mile race for students, and column C the age of the students. a) Use the data analysis tools to plot a line graph of all the finishing times. b) Calculate the mean, median, mode, sample variance, sample standard deviation, and coefficient of variation to statistically describe the data. c) Use Excel to find the covariance between the two variables. What does the covariance indicate about the relationship between finishing time and age?

Froeb et al.’s Chapter 3: a. Individual problems: 3-1 and 3-3. Individual problem 3-1: You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no resale value). U2 has a concert the same night, and this represents your next-best alternative activity. The tickets to the U2 concert costs $80, and on any particular day, you would be willing to pay up to $100 to see this band. Assume that they are no additional costs of seeing either show. Based on the information presented here, what is the opportunity cost of seeing Bruce Springsteen?

Individual problem 3-3: Due to the housing bubble, many houses are now selling for much less than their selling price just two or three years ago. There is evidence that homeowners with virtually identical


houses tend to ask more if they paid more for the house. What fallacy are they making?

Salvatore’s Chapter 3: a. Discussion Questions: 9. b. Problems: 1(a), 7, and 9. Discussion Question 9: How would you react to a sales manager’s announcement that he or she has in place a marketing program to maximize sales?

Problem 1(a): Given the following total-revenue function: TR=9QQ2(a) Derive the total-, average-, and marginal- revenue schedules from Q=0 to Q=6 by 1’s.

Problem 7: Given the following total-cost schedule, Derive the average-and marginal-cost schedules

Problem 9: With the total-revenue curve of Problem 1 and the totalcost curve from

Froeb et al.’s Chapter 4: a. Individual problems: 4-5 and 4-6.


Individual problem 4-5: Your new insurance firm processes claims through its newer, larger high-tech facility and its older, smaller lowtech facility. Each month, the high-tech facility handles 10,000 claims, incurs $100,000 in fixed costs and $100,000 in variable costs. Each month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs. If you anticipate a decrease in the number of claims, where will you lay off workers?

Individual problem 4-6: A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier? ==============================================

BUSI 620 Week 2 Discussion Board 2

FOR MORE CLASSES VISIT www.busi620mentor.com Question #2 - Discuss how e-commerce affects you and/or your company.


#5 How important is saving for a household and the economy? How much should be saved? ==============================================

BUSI 620 Week 2 Questions for Critical Thinking 2 (SOLUTIONS)

FOR MORE CLASSES VISIT www.busi620mentor.com Business 620 Critical Thinking Two Salvatore’s Chapter 4: Discussion Questions: 8 and 10, 11. Problems: 3(a) and (b), 7, 9, and 14, 15.

Froeb et al.’s Chapter 6: Individual problems: 6-1, 6-3, and 6-5.

Salvatore’s Chapter 5: Problems: 8, 15(b) and (c), and appendix problem 2 (p. 215).


Discussion Question 8: If the price increase by 10 percent by how much does the quantity of household a) natural gas and b) electricity change in the short run and the long run? (Hint: use the price-elasticity values). Discussion Question 10: Agricultural commodities are known to have a price-inelastic demand and to be necessities. How can this information allow us to explain why the income of farmers falls a) After a good harvest? b) In relation to the incomes in other sectors of the economy?

Discussion Questions: 11. Suppose that the cross-price elasticity of demand between McIntosh and Golden Delicious apples is 0.8 between apples and apple juice is 0.5 between apples and cheese is -0.4 and between apples and beer is 0.1 what can you say about the relationship between each set of commodities

Problem 3: Starting with the estimated demand function for Chevrolets given in Problem 2, assume that the average value of the independent variables changes to N=225 million, I=12,000, PF=10,000, PG=100 cents, A=250,000 and PI=0.


a) Find the equation of the new demand curve for Chevrolets. b) Plot this new demand curve, D’C, and, on the same graph, plot the demand curve for Chevrolets, DC, found in Problem 2(d). Problem 7: The total operating revenues of a public transportation authority are $100 million while its total operating costs are $120 million. The price of a ride is $1, and the price elasticity of demand for public transportation has been estimated to be -0.4. By law, the public transportation authority must take steps to eliminate its pricing deficit. a) What pricing policy should the transportation authorty adopt? Why? (b) b) What price per ride must the public transportation authority charge to eliminate the deficit if it cannot reduce costs? Problem 9: A researcher estimated that the price elasticity of demand for automobiles in the United States is -1.2, while the income elasticity of demand is 3.0. Next year, U.S. auto makers intent to increase the average price of automobiles by 5 percent, and they expect consumers’ disposable income to rise by 3 percent. a) If sales of domestically produced automobiles do expect U.S auto makers to sell next year? b) By how much should domestic auto makers increase sales by 5 percent next year?

Problem 14: Suppose that a firm maximizes its total profits and has a marginal cost of production of $8 and price elasticity of (-) 3. Find the price at which the firm sells the product. Problem15.


The research department of the Corn Flakes Corporation CFC estimated the following regression for the demand of the cornflakes it sells: QX = 1.0 - 2.0P X + 1.5I + 0.8P Y - 3.0P M + 1.0A Where QX = sales of CFC cornflakes, in millions of 10- ounce boxes per year P X = the price of CFC cornflakes, in dollars per 10- ounce box I = personal disposable income, in trillions of dollars per year P Y = price of competitive brand of cornflakes, in dollars per 10ounce box P M = price of milk, in dollars per quart A = advertising expenditures of CFC cornflakes, in hundreds of thousands of dollars per year This year, P X = $2, I = $ 4, P Y = $ 2.50, P M = $ 1, and A = $ 2. Froeb et al.’s Chapter 6: Individual problems: 6-1, 6-3, and 6-5.

Individual problem 6-1: George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50 he sold only 4,000 T-shirts. a) What is the demand elasticity? b) If his marginal cost is $4 per shirt, what is his desired markup and what is his initial actual markup?


c) Was raising the price profitable?

Individual problem 6-3: To conduct an experiment, AMC increases movies tickets from $9 to $10 and measured the change in ticket sales. Using the data over the following month, they concluded that the increase was profitable. However, over the subsequent months, they changed their monds and discontinued the experiment. How did the timing affect their conclusion about profitability of increasing prices?

Individual problem 6-5: An end-of-aisle price promotions changes the price elasticity of a good from -2 to -3. If the normal price $10,what should be the promotional price be?

Salvatore’s Chapter 5: Problems: 8, 15(b) and (c), and appendix problem 2 (p. 215).

Problem 8: In a study published in 1980, B.B. Gibson estimated the following price and income elasticities of demand for six types of public goods.

a) Do these public goods conform to the law of demand? For which public goods is demand price elastic? b) What types of good are these public goods?


c) If the price or cost of college and university education increased by 10% and, at the same time, incomes also increased by 10%, what would be the change in the demand for college and university education? Problem 15: Starting with the data from Problem 6 and the data of the price of a related commodity for the years 1986 to 2005 given below, we estimated the regression for the quantity demanded of a commodity (which we now relabel Qx), on the price of the commodity (which we now label Px), consumer income (which we now label Y), and the price of the related commodity (Pz), and we obtained the following results b) Evaluate the above regression results c) What type of commodity is Z? Can you be sure?

Appendix problem 2: a) Estimate the regression in Problem 5 based on Table 5-6 using Excel’s regression function in the Data Analysis menu. b) Using the coefficients found in the regression estimate, enter a formula based in cells C6 through J6 to forecast the sales when quality control goes from $2 million to $9 million a year. c) Graph both the actual data and the forecast using the graphing tools. Does the forecast vary much from the actual data ==============================================

BUSI 620 Week 3 Discussion Board 3


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#4 Discuss benefits and costs of unemployment benefits to individuals and to the economy. #5 Comment on the following statement: "A company should produce and sell any product as long as there is a market for it." ==============================================

BUSI 620 Week 3 Questions For Critical Thinking 3 (SOLUTIONS)

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Business 620 Critical Thinking Three


Salvatore’s Chapter 6: Discussion Questions: 1, 7, and 15. Problems: 7 and appendix problems 1 and 3 (pp. 256–257).

Salvatore’s Chapter 7: Discussion Questions: 3, 11, and 12. Problems: 4, 12, and 13.

Discussion Question 1: a) What is forecasting? Why is it so important in the management of business firms and other enterprises? b) What are the different types of forecasting? c) How can the firm determine the most suitable forecasting method to use? Discussion Question 7: a) Which type of smoothing technique is generally better? b) How do we determine which of two smoothing techniques is better? c) How can we forecast the values of a time series that contains a secular trend as well as strong seasonal and random variations?


Discussion Question 15: Explain why it is still useful to pursue forecasting even though it is often off the market by wide margins Problem 7: The following table represents data on three leading indicators for a three-month period. Construct the composite index (with each indicator assigned equal weight) and the diffusion index. Appendix Problem 1: The following table reports the Consumer Price Index for the Los Angeles area on a monthly basis from January 1998 to December 2000 (base year= 1982-1984). Eliminating the data for 2000, use Excel to forecast the index for all of 2000 using a three- and sixmonth average. Which provides a better forecast for 2000 using the data provided? Appendix Problem 3: Forecast the data for 2000 again in Problem 1 with exponential smoothing with w=0.3 and w=0.7. Is this a better forecast than the moving average? Salvatore’s Chapter 7: Discussion Questions: 3, 11, and 12. Problems: 4, 12, and 13. Discussion Question 3: a) How is the law of diminishing returns reflected in the shape of the total product curve?


b) What is the relationship between diminishing returns and the stages of production?

Discussion Question 11: Minimum wage legislation requires most firms to pay workers no less than the legistiated minimum wage per hour. Using marginal productivity theory, explain how a change in the minimum wage affects the employment of unskilled labor Discussion Question 12: It is always better to hire a more qualified and productive worker than a less qualified and productive one regardless of cost. True or false? Explain Problem 4: Ms. Smith, the owner and manager of the Clear Duplicating Service located near a university, is contemplating keeping her shop open after 4pm and until midnight. In order to do so, she would have to hire additional workers. She estimated that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each unit of output is $10 and each worker hired must be paid $40 per day, how many workers should Ms. Smith hire? Problem 12: Suppose that the production function for a commodity is given by Q=10 √LK where Q is the quality of output, L is the quantity of labor, and K is the quantity of capital.


a) Indicate whether this production function exhibits constant, increasing, or decreasing returns to scale. b) Does this production function exhibit diminishing returns? If so, when does the law of diminishing returns begin to operate? Could we ever get negative returns?

Problem 13: Indicate whether each of the following statements is true of false and give the reason. a) A firm should stop expanding output after reaching diminishing returns b) If large and small firms operate in the same industry, we must have constant returns to scale. ============================================= =

BUSI 620 Week 4 Discussion Board 4

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Question #1 - Tetrangle Manufacturing has fixed costs of $2,160 per day. The firm manufactures bicycle component upgrade kits. The kits have a short-run average variable cost of $48 and are sold for $66 each. What is the breakeven level of daily output for the firm? What is the degree of operating leverage when the daily output is Q = 170? Question #5 - As an employer wants to reduce the production cost during the economic recession, he/she could choose to (1) lay off some workers without changing wages or (2) keep all workers but cut wages for all. Which method would you choose? Why? ============================================= =

BUSI 620 Week 4 Questions for Critical Thinking 4 (SOLUTIONS)

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Business 620 Critical Thinking Four Salvatore’s Chapter 8: a) Discussion Questions: 2 and 10. b) Problems: 3, 11,12 and spreadsheet problem 1 (p. 357).

Salvatore’s Chapter 9: a)

Problems: 7, 11, and spreadsheet problem 1.

Froeb et al.’s Chapter 9: a) Individual problems: 9-2, 9-3 and 9-4.

Froeb et al.’s Chapter 11: a) Individual problems: 11-4 and 11-5.

Discussion Question 2:


a) What is the distinction between marginal cost and incremental cost? b) How are sunk costs treated in managerial decision making? Why?

Discussion Question 10: What are the aim, usefulness, and shortcomings of a) Cost-volume-profit analysis and b) The concept of operating leverage?

Problem 3:Airway Express has an evening flight from LA to NY with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in NY overnight is $1,200 and would be zero in LA. The airline is contemplating eliminating the night flight out of LA and replacing it with a morning flight. The estimated number of passengers is 70 in the morning and 50 in the return afternoon flight. The one-way ticket for any flight is $200. The operating cost of the plane for each flight is $11,000. The fixed cost for the plane is $3,000 per day whether it flies or not.


a) Should the airline replace its night from LA with a morning flight? b) Should the airline remain in business?

Problem 11: The Goldberg- Scheinman Publishing Company is publishing a new managerial economics text for which it has estimated the following total fixed and average variable costs.

Total fixed costs: Copy editing Typesetting Selling and promotion 10,000 70,000 20,000 Total fixed costs: $100,000 Average variable costs: Printing and binding


Administrative costs Sales commissions Bookstore discounts Author’s royalties 6 2 1 7 4 Average variable costs $20 Project selling price $30

Determine the breakeven output and total sales revenues and draw the cost-volume-profit chart Determine the output that would generate a total profit of $60,000 and the total sales revenues at that output level; draw the cost-volume-profit chart.


Spreadsheet problem 1: For the following table, calculate in Excel the average fixed costs (AFC), the average variable cost (AVC), the average total costs (ATC), and the marginal costs (MC).(note total fixed cost=$30)

Salvatore’s Chapter 9: a) Problems: 7, 11, and spreadsheet problem 1. Problem 7: From figure 9-4, determine the effect of a 33 percent tariff on commodity X

Problem 11: Most book publishers pay authors a percentage of the revenue from book sales. Explain the conflict that this creates between publishers and authors.

Spreadsheet problem 1: If the market supply function of a commodity is QS=3,250 and a) the market demand function is QD=4,750-50P is expressed in dollars, use Excel to calculate values QD and QS for P from 25 to 50 in 1’s. b) If the market demand increased to Q’D=5,350-50P, what is the equilibrium price?


c) If the market demand decreased to Q’’D=4,150-50P, what is the equilibrium price? d) For (a)-(c), if TC=0.005Q2-Q, what is the profit in each case?

Froeb et al.’s Chapter 9: a) Individual problems: 9-3 and 9-4. Individual Problem 9-2 Because beer and marijuana are seen as substitutes, beer sellers would have opposed the legalization of marijuana. But since snack foods are a complement to marijuana, snack food sellers would have been in favor of legalization of marijuana.

‘Individual problem 9-3: Snack food vendors and beer distributors earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When CA voted on legalizing marijuana, which side do you think that California beer distributors were on? What about the snack food vendors? Why?


Individual problem 9-4: Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or pricing strategies?

Froeb et al.’s Chapter 11: a) Individual problems: 11-4 and 11-5. Individual problem 11-4: How does a decrease in US interest rates affect the EU/US exchange rate?

Individual problem 11-5: How will a dollar devaluation affect businesses and consumers in the twin cities of El Paso, US and Juarez, Mexico? ============================================= =

BUSI 620 Week 4 Test 1 (TWO DIFFERENT VERSIONS)

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The level of sales in May, June, July, and August were 84, 92, 83, and 89, respectively. What is the four-period moving average forecast of sales in September? If the t ratio for the slope of a simple linear regression equation is equal to 1.614 and the critical values of the t distribution at the 1% and 5% levels of significance, respectively, are 3.499 and 2.365, then the slope is Which of the following is a leading economic indicator? Economies of scope refers to the decrease in average total cost that can occur when a firm The forecast level of sales for the month of May was 240 units. Actual sales in May turned out to be 200 units. Use an exponential smoothing coefficient of 0.8 to forecast sales for June Application of simple linear regression analysis to the estimation of a demand equation has yielded the following: Q = 24 - 2 P If the current product price is P=$6 and the quantity sold per time period is Q=10, then the error (e) for the current time period is equal to (actual quantity sold estimated quantity sold) One difference between foreign and domestic demand for a commodity exported by the U.S. is that


Monica quit her $50,000 per year job, purchased a building that was previously rented by the operator of a candy store for $1,500 per month, and used the space to breed and sell tropical fish. In her first year she made a business profit of $60,000. What was her economic profit? As the economy emerged from the most recent recession, household income rose by 6%. Over the same period, total expenditures on beef increased by 3%. Assuming that all other economic variables were held constant, Which of the following would be referred to as "outsourcing"? Which of the following is a question that is uniquely relevant to the subject of business ethics? Of the following types of costs, which is most likely a fixed cost for a shoe manufacturer? Mr. D’s Barbeque of Pickwick, TN produces 10,000 dry­rubbed rib slabs per year. Annually Mr. D’s fixed costs are 50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is Which of the following is not a qualitative forecasting technique? If the price elasticity of demand for a product is -5, and the income elasticity of demand for the product is 2.5. If a 0.5%


decrease in product price as accompanied by a 1% decrease in consumer income, the firm's total sales will Which of the following would most likely make the demand for an item more elastic? The price of a firm's product increases from $5 to $6. As a result, the quantity demanded of the product declines from 600,000 to 500,000. The price elasticity of demand for the good is equal to (Use the arc price elasticity of demand) Regression analysis was used to estimate the following seasonal forecasting equation: St = 124 + 18 D1 - 46 D2 - 28 D3 + 2.5 T D1 is a dummy variable that is equal to one in the first quarter and zero otherwise; D2 is a dummy variable that is equal to one in the second quarter and zero otherwise; and D3 is a dummy variable that is equal to one in the third quarter and zero otherwise. Forecast the level of sales in the second quarter of time period ten (T=10). A computer manufacturer can produce 5 computers for $5,000 and 10 computers for $7,500. Based on this information, what is the marginal cost per computer of the 6th through 10th computer?


The Country Music Hall of Fame is considering lowering admission prices to increase gross revenue. This plan will work if the price elasticity of demand for tickets is The theory of the firm postulates that the primary objective of managers is to maximize If three of the eleven leading indicators move up, and the remaining eight are constant, the diffusion index is Which of the following is a business function that is a part of logistics? Which of the following is not viewed by firms as an advantage of electronic commerce over traditional commerce? A multiple regression analysis based on a data set that consists of 30 observations yielded the following estimated demand equation: Q = 120 - 1.1 P + 0.04 I + 0.90 A where P is price, I is income, and A is advertising. If price is equal to $1,000, income is equal $20,000, and advertising expenditures are equal to $500, then the predicted quantity demanded (Q) is What is the present value of $1.21 received at the end of two years if the interest rate is 10% and compounding is annual? The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units per day at a price


of $2. If the firm increases its product price by 10%, then it can expect to sell approximately A leading indicator is a measure that usually A security system company’s total production costs depend on the number of systems produced according to the following equation, Total costs = $10,000,000 + $2,000 Q where Q is the quantity produced. What is the average total cost of production when 20,000 uits are produced? Buyers consider gasoline and SUV to be complements. If gasoline price increases, what would you expect to occur in the SUV market? Which of the following is an explicit cost to a firm? A country that has an abundance of cheap labor will tend to If Sam’s, a local watering hole, increased the price of a pint of Guinness by 20%, it estimates the number of MBA students purchasing Guinness would decrease by 4%. Based on this data Use the information about marginal cost (MC) and marginal revenue (MR) that is presented in the table below to determine the profit maximizing level of output. A baseketball company is considerign purchasing a new machine that doubles capacity from producing 100 balls to


200 balls per day. The machine will occupy 1,000 square feet of unused space on the facotry floor. Which costs are irrelevant in this decision to purchase a machine? Regression analysis was used to estimate the following linear trend equation: St = 10.5 + 0.25 t Use this equation to forecast the value of the dependent variable (St) in time period of 10 In a free-enterprise system, profit is socially desirable because it If you are trying to determine the value of a firm, which of the following factors would be relevant? A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable cost of $150. If the firm's cost and revenue curves are linear, how much output must the firm produce to break even? A firm currently produces 2,500 units of output per week. After an additional worker is hired, output rises to 2,620 units per week. If the weekly wage paid to a worker is $480, what is the firm's short-run marginal cost? ============================================= =


BUSI 620 Week 5 Discussion Board 5

FOR MORE CLASSES VISIT www.busi620mentor.com 2. Why are cartels unstable and why do they often fail? 5. Respond to the charge that immigrants flood the labor market and drive down wages in the U.S. ============================================= =

BUSI 620 Week 5 Questions for Critical Thinking 5 (SOLUTIONS)

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Salvatore’s Chapter 10: a) Discussion Questions: 2,3 and 8. b) Problems: 1 and 5.

Froeb and McCann's Chapter 10: a)

Individual problems: 10-4.

Salvatore’s Chapter 11: a) Discussion Questions: 11,12 and 13. b) Problems: 2, 6, and 10.

Froeb and McCann's Chapter 15: a) Individual problems: 15-4 and 15-5.

Discussion Question 2: (a) What are the advantages of the Herfindahl index over concentration ratios in measuring the degree of concentration in an industry? (b) What is the disadvantage of both?


DQ3: What is the difference between limit pricing and contestable markets?

Discussion Question 8: In what way does OPEC resemble a cartel? How successful was it? Problem 1: Find the Herfindahl index for an industry composed of (a) three firms—one with 70 present of the market, and the other two with 20 and 10 percent of the market, respectively; (b) one firm with a 50 percent share of the market and 10 other equal-sized firms; (c) 10 equal-sized firms. Problem 5: Starting with the reaction functions of duopolists A and B from Problem 4, find the Cournot solution algebraically. Froeb and McCann's Chapter 10: a) Individual problems: 10-4. Individual problem 10-4: Examine the US passenger airline industry using the Five Forces. Is this an attractive industry? Why or why not? Salvatore’s Chapter 11: a) Discussion Questions: 12 and 13. b) Problems: 2, 6, and 10.


DQ11: Do the duopolists in a Cournot equilibrium face a prisoners’ dilemma? Explain.

Discussion Question 12: How did the 1971 law that banned cigarette advertising on television solve the prisoners’ dilemma for cigarette producers? Discussion Question 13: (a) What is the meaning of tit-fortat in game theory? (b) What conditions are usually required for tit-for-tat strategy to be the best strategy? Problem 2: From the following payoff matrix, where the payoffs are the profits or losses of the two firsts, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, (c) the optimal strategy for each firm, and (d) the Nash equilibrium, if there is one. Problem 6: Explain why the payoff matrix in problem 1 indicates that firms A and B faces the prisoner’s dilemma Problem 10: Given the following payoff matrix, (a) indicate the best strategy for each firm. (b) Why is the entrydeterrent threat by firm A to lower the price credible to B? (c) What could firm A do to make its threat credible without building excess capacity? Froeb and McCann's Chapter 15: a) Individual problems: 15-4 and 15-5.


Individual problem 15-4: The following represents the potential outcomes of your first salary negotiation after graduation: Assuming this is sequential move game with the employer moving first, indicate the most likely outcome. Does the ability to move first give the employer an advantage? If so, how? As the employee, is there anything you could do to realize a higher payoff? Individual problem 15-5: Every year, management and labor renegotiate a new employment contract by sending the proposals to an arbitrator who chooses the best proposal (effectively giving one side or the other $1 million). Each side can choose to hire, or not hire, an expensive labor lawyer (at the cost of $200,000) who is effective at preparing the proposal in the best light. If neither hires lawyers or if both hire lawyers, each side can expect to with about half of the time. If only one side hires a lawyer, it can expect to win three-quarters of the time. a) Diagram this simultaneous move game b) What is the Nash Equilibrium of the game? c) Would the sides want to ban lawyers? ============================================= =

BUSI 620 Week 6 Discussion Board 6


FOR MORE CLASSES VISIT www.busi620mentor.com 1. Why does an exporter face a foreign exchange risk? How can the exporter hedge its foreign exchange risk?

5. Do you think the interest on pay day loans is too high or just right? Should Christians charge poor people on interest? ============================================= =

BUSI 620 Week 6 Questions for Critical Thinking 6 (SOLUTIONS)

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Business 620 Critical Thinking Six Salvatore’s Chapter 12: a) Discussion Questions: 7, 8,11, and 13. b) Problems: 5,12 and spreadsheet problem 1 (p. 523).

Froeb et al.’s Chapter 14: a) Individual problems: 14–1 and 14–4.

Salvatore’s Chapter 13: a) Discussion Questions: 8 and 10. b) Problems: 12, 13, and 15.

Discussion Question 7: Quantity discounts are not a form of price discrimination because the firm saves on handling large orders? True or false? Explain Discussion Question 8


(a) Why are first- and second-degree price discrimination less common than third- degree price discrimination? (b) Are lower airline fares at midweek an example of thirddegree price discrimination? (c) Under what conditions would it not be useful to charge different prices in different markets (i. e., practice third-degree price discrimination) even if possible?

Discussion Question 11: How is the transfer price of an intermediate product determined when: a) There is no external market for the intermediate product b) A perfectly competitive external market for the intermediate product exists c) An imperfectly competitive external market for the intermediate product exists?

Discussion Question 13: What are: a) The advantages of cost-plus pricing? b) The disadvantages of cost-plus pricing? c) Why is incremental cost pricing the correct pricing method? Why is full-cost pricing equal to it?


Problem 5 The Dairy Farm Company, a small producer of milk and cheese, has estimated the quantities of milk and cheese that it can produce with three levels of total expenditures or total costs. These are indicated in the following table. If the price of milk (product A) and the price of cheese (product B) that the firm receives are $ 1 each per unit of the products, draw a figure showing the maximum total profi t (p) that the firm can earn at each level of TC and the overall maximum profit that the firm can earn for the three different levels of TC. Problem 12: a) Will a monopolist’s total revenue be larger with seconddegree price discrimination when the batches on which it charges a uniform price are larger or smaller? Why? b) How does a two-part tariff differ from bundling?

Spreadsheet Problem 1: Using a spreadsheet like the following, entering formulas for the total revenue and consumers surplus, and given the following demand curve of a consumer for a monopolist product Q=14-2p


a) Find the total revenue of the monopolist when it sells 6 units of the commodity without practicing any form of discrimination. What is the value of the consumer’s surplus? b) What would be the total revenue of the monopolist if it practiced first-degree price discrimination? How much would the consumers’ surplus be in this case? c) What if the monopolist charged P=$5.50 for the first 3 units of the commodity and P=$4 for the next 3 units – what type of price discrimination is this?

Froeb et al.’s Chapter 14: a) Individual problems: 14–1 and 14–4. Individual Problem 14-1: Why might Mattel set a much lower contribution margin on its Barbie dolls than on the accessories for the dolls?

Individual Problem 14-4: A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an autodefrost feature. Female shoppers generally value microwaves more than men and attribute value to the autodefroster feature. There is little additional cost to incorporating auto defrost feature. Since men and women


cannot be charged different prices for the same product the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $70 and one with auto defrost at $80 while women value a simple microwave at $80 and one with auto defrost at $150. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue? What if women compromise the bulk of microwave shoppers?

Salvatore’s Chapter 13: a) Discussion Questions: 8 and 10. b) Problems: 12, 13, and 15. Discussion 8: What is the basic difference between using a subsidy to induce producers to install antipollution equipment and a tax on producers who pollute?

Discussion 10: Given the difficulties that the regulation of public utilities faces, would it not be better to nationalize public utilities, as some European countries have done? Explain your answer


Problem 12: Determine whether the Justice Department would challenge a merger between two firms in an industry with 10 equal sized firms, based on its 1984 Herfindahlindex guidelines only

Problem 13: Explain: a) In what way the U.S. trucking industry exemplified the capture theory hypothesis of government regulation prior to the passage of the Motor Carrier Act of 1980 and b) The result of the passage of the Motor Carrier Act in 1980.

Problem 15: From the following figure referring to natural monopolist, indicate a) The best level of output, price, and profit per unit and in total for the monopolist b) The best level of output and price with a lump sub tax that would eliminate all monopolists profits c) The best level of output, price and profits per unit and in total with a $3 per unit tax collected from the monopolist, and


d) The best level of output and profit per unit and in total if the government sets the price of the product or service at $10. e) Which is the best method of controlling monopoly power? Why? ============================================= =

BUSI 620 Week 7 Questions for Critical Thinking 7 (SOLUTIONS)

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Business 620 Critical Thinking Seven

Salvatore's Chapter 14: a) Discussion Questions: 12 and 15.


b) Problems: spreadsheet problems 1 and 2.

Froeb et al.’s Chapter 17: a) Individual problems: 17–1 and 17–4.

Froeb et al.’s Chapter 19: b) Individual problems: 19–5 and 19–6.

Salvatore's Chapter 15: a) Discussion Questions: 7. b) Problems: 8, 10, and spreadsheet problem 1.

Discussion Question 12: What is the rationale behind the minimax regret rule? What are some of the less formal and precise methods of dealing with uncertainty? When are these useful?


Discussion Question 15: How does the adverse selection problem arise in the credit-card market? How do creditcard companies reduce the adverse selection problem that they face? To what complaint does this give rise? Spreadsheet Problem 1: An individual has to choose between investment A and investment B. The individual estimates that the income and probability of the income from each investment are as given in the following table.

Investment A Investment B Income Probability Income Probability 4,000 0.2 4,000 0.3 5,000 0.3


6,000 0.4 6,000 0.3 8,000 0.3 7,000 0.2

Using Excel’s statistical tools, calculate the standard deviation of the distribution of each investment. Which of the two investments is more risky? Which investment should the individual choose? Spreadsheet Problem 2: An individual is considering two investment projects. Project A will return a zero profit if conditions are poor, a profit of $4 if conditions are good, and a profit of $8 if conditions are excellent. Project B will return a profit of $2 if conditions are poor, a profit of $3 if conditions are good, and a profit of $4 if conditions are


excellent. The probably distribution of the conditions is as follows:

Conditions: Poor Good Excellent Probability 40% 50% 10%

Using Excel, calculate the expected value of each project and identify the preferred project according to this criterion. Assume that the individual’s utility function for profit is U(X) =X-0.05X2. Calculate the expected utility of each project and identify the preferred project according to this criterion. Is this individual risk adverse, risk neutral, or risk seeking? Why? Froeb et al.’s Chapter 17:


a) Individual problems: 17–1 and 17–4. Individual Problem 17-1: You’re the manager of global opportunities for a US manufacture, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities: England, France, and Germany. If you enter the English market, you have a 0.5 chance of a big success (selling 100,000 units at a per-unit profit of $8), a 0.3 chance of moderate success (selling 60,000 units at a per-unit profit of $6), and a 0, 2 chance of failure (selling nothing). If you enter the German market, you have a 0.2 chance of huge success (selling 150,000 units at a per-unit profit of $10), a 0.5 chance of moderate success (selling 70,000 units at a per-unit profit of $6), and a 0.3 chance of failure (selling nothing). If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $250,000, should you enter one of the European markets? If so, which one? If you enter, what is your expected profit? Individual Problem 17-4: Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for possible future product and estimates that the reservation value of $250,000. Your dealings on the second-hand market lead you to believe that these is a 0.4 chance a random buyer will pay $300,000 a 0.25 chance the buyer will pay $350,000, a 0.1 chance the


buyer will pay $400,000, and a 0.25 chance it will not sell. If you must commit to a posted price, what prices maximizes profit? Froeb et al.’s Chapter 19: b) Individual problems: 19–5 and 19–6. Individual Problem 19-5: Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose you’re trying to sell a company a new accounting system that will reduce costs by 10%. Instead of naming that price, you offer to give them the product in exchange for 50% of their cost savings. Describe the information asymmetry, the adverse selection problem, and why soft selling is a successful signal. Individual Problem 19-6: You need to hire some new employees to staff your start-up venture. You know that potential employees are distributed throughout the population as follows, but you can’t distinguish among them: Employee Value Probability $50,000 0.25 $60,000


0.25 $70,000 0.25 $80,000 0.25 What is the expected value of five employees you hire? Salvatore's Chapter 15: a) Discussion Questions: 7. b) Problems: 8, 10, and spreadsheet problem 1.

Discussion Question 7: a) When can the NPV and the IRR methods of evaluating investment projects provide contradictory results? b) How can this arise? c) Which method should then be used? Why? Problem 8: John Piderit, the general management of the Western Tool Company, is considering introducing some new tools to the company’s product line. The top management of the firm has identified three types of tools (referred to as projects A, B, and C). The various divisions of the firm have provided the data given in the following table


on these three possible projects. The company has a limited capital budget of $2.4 million for the coming year. a) Which project(s) would the firm undertake if it used the NPV investment criterion? b) Is this the correct decision? Why? Problem 10: The MacBurger Company, a chain of fast-food restaurants, expects to earn $200 million after taxes for the current year. The company has a policy of paying out half of its net after-tax income to the holders of the company’s 100 million shares of common stock. A share of common stock of the company current sells for eight times current earnings. Management and outside analysts expect the growth rate of earnings and dividends for the company to be 7.5 percent per year. Calculate the cost of equity capital to this firm. Spreadsheet Problem 1: The benefits and costs of an investment project (the purchase of a piece of machinery) are those given in the following table. In excel, calculate the net revenue, or the revenue from the investment minus the costs; the present value coefficient for every year, and the present value of the net revenue. Add together column F to get the net present value of the project. Should the firm purchase the machine? ============================================= =


BUSI 620 Week 8 Test 2 (100 % Score)

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100 % Score

Question 1 A movie theater that charges a lower price for matinees than for evening showings is engaging in

Question 2 The market demand curve for a perfectly competitive industry is QD=122P.


Question 3 An individual is indifferent between a certain payment of $20 and a game that will pay $50 or nothing with equal probabilities. The individual has a certainty equivalent coefficient of

Question 4 A market is comprised of five firms and their market shares are 30%, 25%, 20%, 15%, and 10%. What is the Herfindahl index for the industry?

Question 5 An investment opportunity will pay $10 with a 20% probability, $20 with a 40% probability, $30 with a 30% probability, and $40 with a 10% probability. What is the standard deviation of the investment?

Question 6


The fully allocated cost of a product is $45. If the firm wants to use a markup of 30%, then it should charge a unit price of

Question 7 Investment A has an expected value of 5 and a standard deviation of 2. Investment B has an expected value of 10 and a standard deviation of 5. Using the coefficient of variation approach to comparing these two investments,

Question 8 Suppose that the firms in an oligopolistic market engage in a price war and, as a result, all firms earn lower profits. Game theory would describe this as


Question 9 Identify the Nash equilibrium in the following game.

Question 10 The fully allocated cost of a product is $10. If the price elasticity of demand for the product is 2, then the firm's optimal markup is

Question 11 A firm plans to raise $4 million by borrowing at an interest rate of 16% and to raise $1 million by issuing common stock. The firm's stock has a beta coefficient of 2, the risk free interest rate is 6%, the average rate of return on stocks is 9%, and the marginal tax rate is


25%. What is the firm's composite cost of capital?

Question 12

A firm that uses profits earned in one market to sell a product or service below its average variable cost in another market is engaged in

Question 13 In game theory, a dominant strategy refers to a choice

Question 14 Which of the following is a device that controls imports and generates government revenue?


Question 15 There are two U.S. locations where your company is currently the only producer of soda. You currently make 40 in each location, but Pepsi is entering the markets. What decision should you make? (the chart applies to each location)

Question 16 A firm that is considering one independent project should accept it if Selected Answer: the internal rate of return on the project exceeds the firm's cost of capital

Question 17 A monopolist faces a marginal revenue function of MR = 20 Q. The monopolist's


marginal cost is $15 at all levels of output. How many units of output should the firm produce in order to maximize profits?

Question 18 Which of the following is always illegal in the U.S.?

Question 19 The restaurant industry has a market structure that comes closest to

Question 20 Which of these deals with asymmetry of information?

Question 21


If an increase in output by a firm imposes uncompensated costs on other firms, these costs are referred to as

Question 22 A firm can borrow at an interest rate of 5%. Its marginal tax rate is 40%. What is its cost of

debt?

Question 23 Which of the following is a condition required for the practice of price discrimination?

Question 24 In the short run, a monoplist will shut down if it is producing a level of output where marginal revenue is equal to shortrun marginal cost, but price is


Question 25 An individual has a certainty equivalent coefficient equal to 0.4. What is the most this individual would pay to play a game that pays $50 or $30 with equal probability?

Question 26 In repeated games, a strategy that involves attacking players that attack you and cooperating with players that cooperate with you is a

Question 27 One difference between the public interest theory and the economic theory of regulation is that the former

Question 28 The prisoners' dilemma explains why


Question 29 A strategy that is best regardless of what rival players do is called

Question 30 An investment opportunity will pay $50 with a 10% probability, $20 with a 40% probability, and will result in a loss of $20 with a 50% probability. What is the expected value of the investment?

Question 31 When several independent firms form a temporary network to take advantage of a shortterm business opportunity, the result is called a

Question 32 The threat of new entrants would be higher under which of the following conditions?


Question 33 Which of the following made monopolization and restraint of trade illegal? Selected Answer: Sherman Act

Question 34 Which of the following is a characteristic of both monopolistic competition and perfect competition?

Question 35 Antilock brakes, airbags, and seatbelts increased the number of accidents while simultaneously decreasing the number of fatal accidents. Why does this happen?

Question 36 An individual must decide whether or not to pursue a business opportunity. If he does


pursue the opportunity, then he will get a $20 profit if the business is successful and a $10 loss if the business fails. Apply the maximin and minimax regret criteria to this decision.

Question 37 Which of the following is an example of the prisoners' dilemma?

Question 38 Which of the following defines a zerosum game?

Question 39 The breakup of AT&T in 1984 separated the poduction of long distance and local telephone service and sacrificed beneftis from

Question 40 In a twoplayer game, which of the following is a Nash equilibrium?


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BUSI 620 MENTOR Education Your Life--busi620mentor.com  

The whole purpose of education is to turn mirrors into windows

BUSI 620 MENTOR Education Your Life--busi620mentor.com  

The whole purpose of education is to turn mirrors into windows

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