# midtermanswers_Exam - Name AEM 424 Management Strategy...

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Cornell Netid: ______________ 2 1. Collegetown Bagels has noticed a decline in the number of students coming in for breakfast over the past two months. They are debating changing their hours of operation and only serving lunch and dinner. They've called you in to advise them on their decision. They show you the following table: Monthly Accounting at Collegetown Bagels, September 2007 [Numbers in parentheses represent negative amounts.] * Other direct costs include the wages of the counter and kitchen staff. All workers are hired hourly and earn \$15/hour. Collegetown Bagels staffs 4 people between 7AM and 11AM, 8 people from 11AM–3PM and 6 people from 3PM–7PM. Collegetown Bagels is only open weekdays. ** Overhead includes the lease on the building and the manager’s salary. Overhead costs are allocated equally across Breakfast, Lunch and Dinner because Collegetown Bagels is open 4 hours a day for each meal. 1a. [7] Should Collegetown Bagels stop serving breakfast? If they do stop, by how much would their profits increase or decrease? If they stop serving breakfast, they will lose \$7,200 in revenue. They will gain \$600+\$4,800 in direct costs (food and other direct costs). So, if they stop serving breakfast, profits will fall (\$7,200-\$600-\$4,800) \$1,800.
Cornell Netid: ______________ 3 2. You are one of two firms producing cordless telephones. Assume that no other firms can enter the market. The market demand for telephones is Q=140-P. Both you and your rival have marginal costs of \$20 per phone. You have no other costs. The market for telephones exists for only one period (i.e., this is a single-shot game). Consumers care

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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.

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midtermanswers_Exam - Name AEM 424 Management Strategy...

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