ReviewI_2 - Lesson I.2 Managerial Economics BA 445 Review...

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Lesson I.2 Managerial Economics BA 445 Review Questions 1 Lesson Topics Substitutes and Complements describe goods that either clash or match. — So, they explain the affect of higher-priced Coke on the demand for Pepsi, but not higher-priced housing on the demand for cars. Comparative Statics (1) determines how competitive equilibrium price and quantity react to a change in a determinant of demand or supply. — So, how is customer service affected by increasing US wages? Price Restrictions (5) impose either maximum or minimum legal prices. Unintended consequences include shortages and surpluses, and contrary full economic prices when buyers or sellers compete.
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Lesson I.2 Managerial Economics BA 445 Review Questions 2 Comparative Statics Question. The Wall Street Journal reports that the prices of personal computer components (cases, power supplies, …) are expected to rise by 5 to 8 percent over the next six months. a. Discuss practical implications for the actions of a small firm that makes personal computers. b. Discuss practical implications for the actions of a small firm that makes software.
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Lesson I.2 Managerial Economics BA 445 Review Questions 3 Answer to Question: Since the firms are small, they are perfect competitors in their output markets, so they have supply curves. Assume also that buyers are perfectly competitive, so their demands form demand curves.
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Lesson I.2 Managerial Economics BA 445 Review Questions 4 a) After the component (input) prices rise, the supply of personal computers falls, which raises prices and lowers quantity produced. That has implications for the actions of the personal computer firm. Contracts/suppliers Tell them you’ll decrease your future orders (for normal inputs). Inventories Increase production and build up inventories while component prices are still low. Human resources Plan for future employment reductions, assuming labor is a normal input. Marketing Plan to reduce marketing for future reduced sales. (Marketing is a normal input.) b) After the component prices rise, the supply of personal computers falls, which raises prices for personal computers, which lowers demand for computer software (assuming they are gross complements). That lower demand lowers prices and lowers quantity produced. That has implications for the actions of the software firm. Contracts/suppliers Tell them you’ll decrease your future orders (for normal inputs). Inventories Reduce production and run down inventories because future sales are reduced. Human resources Plan for future employment reductions, assuming labor is a normal input. Marketing Plan to reduce marketing for future reduced sales. (Marketing is a normal input.)
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Lesson I.2 Managerial Economics BA 445 Review Questions 5 Price Restrictions Question. In 1996, the National Labor Committee, a human rights group, reported that sweatshop labor was used to make clothes for the Kathie Lee [Gifford] line, sold at Wal-Mart. The group reported that a worker in Honduras smuggled a piece of clothing out of the factory, which
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This note was uploaded on 04/22/2011 for the course ECON 101 taught by Professor Asdg during the Spring '11 term at Yaşar Üniversitesi.

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ReviewI_2 - Lesson I.2 Managerial Economics BA 445 Review...

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