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Ch 1[1][2] - Managerial Economics 6005 Homework 1 Chapter 1...

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Managerial Economics – 6005 Homework # 1 Chapter: 1 Q1.3 Describe the effect of each of the following managerial decisions or economic influences on the value of the firm: A. The firm is required to install new equipment to reduce air pollution. If the firm is required to install new equipment to reduce air pollution, then the total cost will be increased, and the total profit will be affected. Thus, the value of the firm will decrease. In the long run the cost will be offset by the benefit of reduced air pollution. If the firm is fine a penalty by the EPA for air pollution, then they may have to spend more. So the overall impact of purchasing the equipment will prove to be in the firm best interest in the long run. B. Through heavy expenditures on advertising, the firm’s marketing department increases sales substantially. Business spends money to gain money. It’s very clear that the goal of increasing revenue through advertisement has been meet. If sales are
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