Question 1

Opportunity cost is:

Accepted Answer

Opportunity cost is the value of the next best alternative forgone in order to pursue a certain action. Therefore, the best choice is A because it correctly defines opportunity cost as the profit of your next best option.

Question 2

If promotional expenditures make demand…

Accepted Answer

When promotional expenditures make demand more elastic, reducing price when promoting the product is the best choice. This is because when demand is more elastic, customers are more sensitive to price changes, and a lower price can lead to a bigger increase in quantity demanded. Therefore, reducing price while promoting the product can result in a larger increase in sales and revenue in the long-run.

Question 3

Using the same information as above and assuming marginal cost is negligible,what is(are)the profit maximizing price(s)?

Accepted Answer

The publisher is indifferent between charging $300 or $100 because the marginal cost is negligible.

Question 4

The publisher of an online Economics Primer course is trying to sell the primer to a group of MBA students and a group of EMBA students in the US.The maximum willingness to pay for the primer in each group of students as well as the number of students in each group is given in the table.Assume the marginal cost is $50. $$\begin{array} { | l | l | l | } 
\hline & \text { Willinemess to pay } & \text { Number af students } \
\hline \text { EMEA } & \$ 300 & 1,000 \
\hline \text { MEA } & \$ 100 & 2,000 \
\hline
\end{array}$$ What is (are)the publisher's profit maximizing price(s)?

Accepted Answer

The answer of The publisher of an online Economics Primer...

Question 5

The higher cost for a refundable airline ticket for business travelers can be explained by:

Accepted Answer

The answer of The higher cost for a refundable airline...

Question 6

When you buy a set of speakers,Best Buy asks if you would like to purchase insurance for your speakers.Assume that paying for new speakers for customers who listen to music at a reasonable level (thus minimizing damage)costs on average $150,and paying for new speakers for customers who listen to music very loudly (more likely to damage the speakers) costs on average $1000.Individual know whether they like music at a reasonable level or at a loud level,but Best Buy can assume that 40% of listeners are reasonable listeners,and 60% are loud listeners.How much does Best Buy have to charge in order to break even?

Accepted Answer

The answer of When you buy a set of speakers,Best...

Question 7

The owner of Bob's Breakfast just bought Nancy's Famous Breakfast across the street.They offer the same breakfast items on the menu.The demand for Bob's Breakfast is more elastic than Nancy's Famous Breakfast.What should the owner do?

Accepted Answer

The demand for Bob's Breakfast is more elastic than Nancy's Famous Breakfast, meaning that a change in price will have a greater impact on the quantity demanded at Bob's Breakfast. Therefore, the owner should raise the prices at both restaurants, but raise the price of Bob's Breakfast more. This will allow the owner to increase profits at both restaurants while still maintaining a competitive advantage at Bob's Breakfast.

Question 8

After acquiring a substitute product,to achieve greater profitability,one should

Accepted Answer

The answer of After acquiring a substitute product,to achieve greater...

Question 9

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 for each location)

Accepted Answer

By pricing low, the company can attract more customers and establish brand loyalty before Pepsi enters the market. This can also make it difficult for Pepsi to gain a foothold in the market, as consumers may be more likely to stick with the cheaper option they are already familiar with. Additionally, if the company already has a strong customer base, pricing low can help to maintain that base and prevent customers from switching to Pepsi.

Question 10

Using the same information as above,suppose you can set one price for MBA students and one price for EMBA students.However you know that MBA students are willing to resell the Primer to EMBA students for their purchase price plus $60.MBA students pay $x and they can resell the primer for $(x + 60).Assuming there are no other cost involved in this transaction and it cannot be prevented.What are the optimal prices for the two groups of students?

Accepted Answer

Since MBA students can resell the primer for $(x+60), their willingness to pay would be $(x+60) and not just x. This means that in order to maximize revenue, the price charged to MBA students should be close to $(x+60) but not equal to it, as this would lead to no profit for the seller.

Let's assume that MBA students are willing to pay $200 for the primer. Then, they would resell it for $(200+60)=$260. In this case, if the price charged to them is $200, the seller would not make any profit as the resale price is equal to the purchase price. However, if the price charged is $240, the seller would make a profit of $40 per unit sold.

On the other hand, EMBA students are not expected to resell the primer, so their willingness to pay is not affected by this factor. Therefore, the optimal price for them is the maximum price they are willing to pay, which is $300.

Therefore, the optimal prices for the two groups of students are $300 for EMBA students and $240 for MBA students. This would maximize revenue for the seller while taking into account the resale factor for MBA students.

Question 11

The five forces model is used to

Accepted Answer

The five forces model is used to understand the profit potential of firms in an industry by examining the competitive forces that impact profitability, including the bargaining power of suppliers and buyers, the threat of new entrants, the threat of substitutes, and the intensity of industry rivalry. It is not used to determine how many firms will enter an industry or to calculate profit levels of firms in an industry, but rather to analyze the overall competitiveness and profitability of the industry.

Question 12

Using the same information as above,suppose you cannot distinguish between the two groups of students.However if you offer a rebate,you know that the EMBA students will never redeem the rebate while MBA students will always redeem the rebate.What is the optimal full price for the Primer and Optimal rebate?

Accepted Answer

The optimal strategy is to set a high full price and offer a rebate that only the price-sensitive group (MBA students) will redeem. Charging $300 and offering a $200 rebate ensures that EMBA students pay the full price while MBA students effectively pay $100 after the rebate.

Question 13

Which of the following questions should NOT be asked when trying to diagnose an organizational problem?

Accepted Answer

The question "Is the decision maker a team player?" focuses on personal traits rather than the structural or informational aspects that typically contribute to organizational problems.

Question 14

Companies Alpha Steel and Beta Steel produce steel.Both companies made only $1 million in profits last year offering both steel rods and steel plates.If Alpha Steel produces just steel rods,and Beta Steel produces just steel plates,both companies will make 5 times as much profit as they do now.However,if Alpha Steel makes both rods and plates and Beta Steel only makes steel plates,Alpha Steel will make 10 times as much profit as they do now,and Beta Steel will make no profit.Likewise,if Beta Steel makes both rods and plates and Alpha Steel only makes steel rods,Beta Steel will make 10 times as much profit as they do now,and Alpha Steel will make no profit.The Nash Equilibrium and optimal result are:

Accepted Answer

The Nash Equilibrium is for each company to concentrate on one product, as this maximizes their individual profits without cooperation. The optimal result, however, is for both companies to offer both products, as this would maximize the total profit for both companies combined.

Question 15

You are an owner of a popular restaurant chain,and you are thinking about franchising additional stores.Which of the following approaches would be best at controlling incentive conflicts?

Accepted Answer

The answer of You are an owner of a popular...

Question 16

A suntan lotion company is interested in expanding to another market.In Miami,there is a 60% chance of selling 5,000 units at a $5 profit/unit,a 20% chance of selling 4,000 at a $8 profit/unit,and a 20% chance of losing $5,000.In Las Vegas,there is a 70% chance of selling 5,000 units at a $6 profit/unit,a 20% chance of selling 4,000 at a $7 profit/unit,and a 10% chance of losing $5,000.Finally,in San Diego,there is a 40% chance of selling 8,000 units at a $9 profit/unit,a 20% chance of selling 4,000 at a $9 profit/unit,and a 40% chance of losing $20,000.To enter each market there is a cost of $15,000.What market should the company enter?

Accepted Answer

The answer of A suntan lotion company is interested in...

Question 17

Your boss asks you to settle a negotiation between yourself and a co-worker.In order to improve your own bargaining position,you should encourage your boss to:

Accepted Answer

The answer of Your boss asks you to settle a...

Question 18

In which type of auction is the item awarded to the highest bidder at a price equal to the highest bid?

Accepted Answer

In a first-price auction, the highest bidder wins the item and pays a price equal to their bid. This is also known as an English auction, which is the most common type of auction.

Question 19

Identify the Nash equilibrium in the following game.

Accepted Answer

The answer of Identify the Nash equilibrium in the following...

Question 20

When are collusions least likely to occur?

Accepted Answer

The answer of When are collusions least likely to occur?
...

Quiz 1: Managerial Economics