Economics - investments in their human capital because they...

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1) Toy Trucks Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for a plastic injection molding machine (which can be sold for $2.0 million) and $100,000 in plastic injection molds specifically for the toy (not valuable to anyone else). Labor and the cost of materials necessary to make each truck is about $3. This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether they should continue production of the toy truck. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? Should you shut down? 2) Sunk or Fixed Human Capital Probably the most important source of capital is human capital. For example, most medical doctors spend years learning to practice medicine. Doctors are willing to make large
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Unformatted text preview: investments in their human capital because they expect to be compensated for doing so when they begin work. In Canada, the government nationalized the health-care system and reduced doctors compensation. Is this a form of post-investment hold-up ? 3) Nike Demand (inelastic) At the current price demand for Nike running shoes is inelastic, should Nike raise or lower price? 4) Burrito Barn The Burrito Barn is considering a price reduction on the Firegut Burrito, which currently sells for the price of $5.00. Giuseppe, the proprietor of Burrito Barn, knows the price elasticity for the Firegut is roughly equal to -2.3 over the range being considered for the price change. The Firegut has been selling at the brisk pace of 500 burritos per week. To increase market share, Giuseppe would like to increase sales to 750 per week. What price should Giuseppe set?...
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This note was uploaded on 01/14/2012 for the course ENGINEERIN MIS 703 taught by Professor - during the Spring '11 term at Marmara Üniversitesi.

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