Question 1

Probably the most important source of capital is human capital.For example,most medical doctors spend years learning to practice medicine.Doctors are willing to make large investments in their human capital because they expect to be compensated for doing so when they begin work.In Canada,the government nationalized the health-care system and reduced doctors' compensation.Is this a form of post-investment hold-up?

Accepted Answer

The answer of Probably the most important source of capital...

Question 2

Last year,a toy manufacturer introduced a new toy truck that was a huge success.The company invested $2.5 million for a plastic injection molding machine (which can be sold for $2.0 million)and $100,000 in plastic injection molds specifically for the toy (not valuable to anyone else).Labor and the cost of materials necessary to make each truck is about $3.This year,a competitor has developed a similar toy that has significantly reduced demand for the toy truck.Now,the original manufacturer is deciding whether they should continue production of the toy truck.If the estimated demand is 100,000 trucks,what is the break-even price for the toy truck? Should you shut down?

Accepted Answer

The answer of Last year,a toy manufacturer introduced a new...

Question 3

Prostitution is unskilled labor with no barriers to entry.Prostitution also diminishes a prostitute's chance for marriage.So why do prostitutes earn relatively high wages.Why? (HINT: the Indifference Principle).

Accepted Answer

The answer of Prostitution is unskilled labor with no barriers...

Question 4

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.Tickets to the U2 concert cost $80,and on any particular day,you would be willing to pay up to $100 to see this band.Assume that there are no additional costs of seeing either show.Based on the information presented here,what is the opportunity cost of seeing Bruce Springsteen?

Accepted Answer

The answer of You won a free ticket to see...

Question 5

A statistician writes a module for a computer software package,which is upgraded every two years.The statistician's cost data are
Fixed one-time programming costs: $20,000
Annual support costs: $4,000
Opportunity cost of capital for the statistician: 12%
a.If the software company pays $7,000/year to use the software,what is the annual economic profit to the statistician? (HINT: compute the opportunity cost of the investment in human capital).
b.Are the setup costs "sunk," i.e.,is the statistician vulnerable to post-investment hold up? If the software company re-negotiated with the statistician,after she invested in his human capital,how much money could they save?
c.if the statistician is smart,she will look ahead and see the potential of post-investment hold up,and refuse the contract.Should the company offer the statistician $24,000 for the first year?

Accepted Answer

The answer of A statistician writes a module for a...

Question 6

Identify which of the following are extent decisions.
A.Decide whether to expand an existing product into a new region.
B.What discount should be given on products during the upcoming holiday sale?
C.Should the advertising budget be changed for the upcoming year?
D.Should you develop a new product for an existing product line?

Accepted Answer

The answer of Identify which of the following are extent...

Question 7

Which of the following are stressed in the strategic view of bargaining?

Accepted Answer

The strategic view of bargaining emphasizes the importance of factors such as the order of moves, the ability to commit to a position, and the potential for counteroffers, all of which can influence the outcome of the bargaining process.

Question 8

Suppose an initial investment of $100 will return $50/year for three years (assume the $50 is received each year at the end of the year).Is this a profitable investment if the discount rate is 20%?

Accepted Answer

The answer of Suppose an initial investment of $100 will...

Question 9

Would incentive pay work better for employees selling tickets at a movie box office or employees selling clothing at a retail store?

Accepted Answer

The answer of Would incentive pay work better for employees...

Question 10

Concert price have increased coincidentally with illegal downloading of music off the internet.What is the causal link?

Accepted Answer

The answer of Concert price have increased coincidentally with illegal...

Question 11

If demand for Nike running shoes is elastic,should Nike raise or lower price?

Accepted Answer

The answer of If demand for Nike running shoes is...

Question 12

Ivan loves classical music,and his favorite composer wrote nine symphonies.Ivan just happens to the 9 symphonies in exactly the order in which they were written.The table below shows the values that Ivan places on having these symphonies which he does not currently yet own:
Rank Total Personal Value
9
2_______________36

4_______________64
5_______________75
6_______________84

8_______________96
9_______________99
You can interpret the above to mean,for example,that Ivan values her favorite Symphony at $19,and that the total value of the first Symphony plus Symphony # 2 (his second favorite)is $36,etc.If the symphonies were sold individually on CDs - one symphony per disc - and the price per CD was $10.00,how many CDs would he buy?
[The above question was inspired by a question by Victor Tabush]

Accepted Answer

The answer of Ivan loves classical music,and his favorite composer...

Question 13

The expression "3/10,net 45" means that the customers receive a 3 percent discount if they pay within 10 days; otherwise,they must pay in full within 45 days.What would the seller's cost of capital have to be in order for the discount to be cost justified? (HINT: Opportunity Cost)

Accepted Answer

The answer of The expression "3/10,net 45" means that the...

Question 14

What economic concepts are being illustrated in 147 and 148 respectively?

Accepted Answer

147 illustrates direct price discrimination where prices are set based on consumer characteristics, while 148 illustrates indirect price discrimination where prices vary based on product versions or purchase conditions.

Question 15

The Burrito Barn is considering a price reduction on the Firegut Burrito,which currently sells for the price of $5.00.Giuseppe,the proprietor of Burrito Barn,knows the price elasticity for the Firegut is roughly equal to -2.3 over the range being considered for the price change.The Firegut has been selling at the brisk pace of 500 burritos per week.To increase market share,Giuseppe would like to increase sales to 750 per week.What price should Giuseppe set?

Accepted Answer

The answer of The Burrito Barn is considering a price...

Question 16

A manger of a day-care center in Haifa,Israel has a clearly stated policy that parents are supposed to pick up their children by 4pm (16:00).But often parents are late.Each week,there is an average of eight late pickups.To combat tardiness,the manager of the center instituted a fine of $3 per child per incident.Surprisingly,the number of late pickups more than doubled,to twenty per week.Why?

Accepted Answer

The answer of A manger of a day-care center in...

Question 17

As a budding entrepreneur,you have purchased a small bagel shop.You have engaged in a market study to categorize your customers' willingness to pay for a meal (coffee+bagel)into 8 equal sized groups: ($5.00,$4.50,$4.00,$3.50,$3.00,$2.50,$2.00,$1.50).All of your costs are fixed except labor and materials,which cost $2.25 per meal sold.
a.What price should you charge for a meal? Does your answer depend on the total number of consumers?
b.Suppose your market research tells you that the four lowest value groups are all students.Should you offer a student discount? If so,how much?

Accepted Answer

The answer of As a budding entrepreneur,you have purchased a...

Question 18

Suppose there are ten individuals with values as follows: {10, 8, 8, 8, 8, 8, 8, 4, 0, 0}.
Construct a demand schedule (table), and calculate the marginal revenue of the second unit sold.

Accepted Answer

The answer of Suppose there are ten individuals with values...

Question 19

Cars are lasting longer.The expected number of miles traveled over a vehicle's life has risen to 180,000 miles in 2001 from 128,000 in 1977.Using supply and demand,predict how the increased longevity of cars will affect the price and quantity of new cars sold in the US.[HINT: Plot the shifts in yearly demand and supply for new cars in the US; an increase in longevity means that the supply of used cars increases.Since used cars are a substitute for new cars,show what happens to the demand for new cars.]

Accepted Answer

The answer of Cars are lasting longer.The expected number of...

Question 20

VetPharm has historically produced and sold drugs for animals; however,one of its products developed for animal use has recently been approved for a similar use in humans.Market research has revealed that that at the current per dose price,the elasticity of demand on the part of animal owners is -2.0.The research also estimates that at this price the elasticity of demand for human use would be -.2.The current price is $5.00 per dose.If the MC of production is $1,what should the company do?
a.reduce animal price; reduce human price.
b.raise animal price; raise human price.
c.reduce animal price; raise human price.
d.raise animal price; reduce human price.
[The above question was inspired by a question by Victor Tabush]

Accepted Answer

The answer of VetPharm has historically produced and sold drugs...

Quiz 1: Managerial Economics