Chapter 1 Homework - 1 Award 10 out of 10.00 points...

1.
Award: 10 out of 10.00 points
Southwest Airlines begins a ''Bags Fly Free'' campaign, charging no fees for a first and second checked
bag.
This situation best represents producer­producer rivalry .
References
Worksheet Learning Objective:
01­07 Identify and
apply six principles
of effective
managerial decision
making.
Learning
Objective: 01­
01 Summarize
how goals,
constraints,
incentives, and
market rivalry
affect
economic
decisions.
Section: The
Economics of
Effective
Management
Southwest Airlines begins a ''Bags Fly Free'' campaign, charging no fees for a first and second checked
bag.
This situation best represents producer-producer rivalry.
Explanation:
Producer­producer rivalry best illustrates this situation. Here, Southwest is a producer attempting to
steal customers away from other producers in the form of lower prices.

2.
Award: 10 out of 10.00 points
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?
Instructions: Do not round intermediate calculations. Round only your final calculation to the
nearest penny (2 decimal places). Use a negative sign (­) where appropriate.
$ 998,178.00
References
Worksheet Learning Objective:
01­07 Identify and
apply six principles
of effective
managerial decision
making.
Learning
Objective: 01­
05 Apply
present value
analysis to
make
decisions and
value assets.
Section: The
Economics of
Effective
Management
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?
Instructions: Do not round intermediate calculations. Round only your final calculation to the
nearest penny (2 decimal places). Use a negative sign (­) where appropriate.
$ 998,177.51 ± 100.00
Explanation:
The maximum you would be willing to pay for this asset is the present value, which is:

3.
Award: 10 out of 10.00 points
Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the
following equations:
B(Q) = 100 + 36Q – 4Q
2
and C(Q) =80 + 12Q.
(Note: MB(Q) = 36 – 8Q and MC(Q) = 12.)
Instructions: Use a negative sign (­) where appropriate.
a. Write out the equation for the net benefits.
N( Q ) = 20 + 24 Q + ­4 Q
2
b. What are the net benefits when Q = 1? Q = 5?
Net benefits when Q = 1:
40
Net benefits when Q = 5:
40
c. Write out the equation for the marginal net benefits.
MNB(Q) = 24 + ­8 Q
d. What are the marginal net benefits when Q = 1? Q = 5?
Marginal net benefits when Q = 1:
16
Marginal net benefits when Q = 5: ­16
e. What level of Q maximizes net benefits?
3
f. At the value of Q that maximizes net benefits, what is the value of marginal net benefits?
0
References
Worksheet Learning Objective:
01­06 Apply
marginal analysis to
determine the
optimal level of a
managerial control
variable.