Chapter 1 Homework

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

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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.

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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:

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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.
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