midterm_answers_Exam - AEM 4240 Management Strategy...

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AEM 4240 Management Strategy Mid-term Exam Fall 2008 Answer Key Write your name and Cornell netid on the top of this page. On the remaining pages, write just your netid on the line at the top. We will grade each answer anonymously. The point value of each question is written in brackets. There are a total of 75 points, one for each minute of test time. Use the point values to pace your work. Be smart about time use! The test is long and you can skip some parts and still do well. I do not expect you to answer every part of every question. Write your answer on the test sheets. Use the back of the sheet if you need more room. You must briefly show your work when the problem requires some arithmetic or calculation. Simply writing the correct final answer without showing the work will not earn credit. To be clear, I just need enough to know that you are not merely guessing. A few words of explanation or just showing your calculation is enough to demonstrate that you are not guessing. When I ask for a one- or two-sentence explanation, that means be short and to the point. Conciseness is a virtue. Writing more will hurt you, not help you.
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Netid: _______ 1. You operate a gasoline (petrol) station on a corner that you share with another gas station. Both you and your rival pay $1/gallon wholesale for your gasoline and you can get as much as you need. You have no other costs of selling gas. State law says that you must post your gasoline price and can change it only on the first day of each month. You and your rival have traditionally marked up gas 50% to sell it for $1.50/gallon. Your rival’s strategy is to keep his price at $1.50 as long as you do. But, if you undercut him, he will lower his price to $1/gallon, and keep his price at that level forever. Consumers always buy the cheapest gas, all else being equal. If the price is the same, demand is split equally between stations. It’s the beginning of the month and you must decide whether to continue pricing at $1.50, or undercut your rival. Interest rates fell from 10% to 5% during the last month and you expect that they will remain lower forever. 1a. [3] Does this lower interest rate make you more or less likely to lower your price? Explain in a sentence or two. Less likely, cooperation in the future is now more valuable. You now learn that your rival has issued coupons indicating that he will match any advertised price on the corner, no matter what his posted price is. 1b. [3] Does this make you more or less likely to lower your price? Explain in a sentence or two. Less likely. You won’t gain market share if you lower your price. Forget about the coupons. Your competitor has now changed his strategy. If you lower your price, he will lower his price to $1.25 the next month and keep it at that price as long as you don’t undercut him. 1c. [3] Does this make you more or less likely to lower your price? Explain in a sentence
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This test prep was uploaded on 02/20/2009 for the course AEM 4240 taught by Professor Blalock,g. during the Fall '07 term at Cornell University (Engineering School).

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midterm_answers_Exam - AEM 4240 Management Strategy...

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