A spirits manufacturer is considering two potential

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Chapter 7 / Exercise 5
Managerial Economics
Froeb/McCann
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18. A spirits manufacturer is considering two potential production investments:Option A costs an initial $2 billion and will involve variable costs (labor and material) of $5 per bottle of spirits. Option B costs an initial $4 billion and will involve variable costs (labor and material) of $3 per bottle of spirits. Assuming an annual capital charge equal to 10 percent of the initial costs, what is the average fixed cost at production level of 20,000,000 bottles per year for the Option B facility? a.$3. b.$20. c.$23. d.$10.
19.Suppose a new manufacturing technology results in an expansion in the supply of golf balls in the United States of 15%. If the elasticity of demand of golf balls sold in the US is -0.4, the new equilibrium price will be
20.“Smitty's Hot Boiled Peanuts" recently reported that its revenue increased from the previous quarter, along with its profits. What is the most likely explanation for this change, if the only change Smitty’s made was in its price?
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Managerial Economics
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Chapter 7 / Exercise 5
Managerial Economics
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ANSWER KEYABCDEABCDEABCDE11121212223132341424515256167178189191020Price of Breast Reconstruction vs. Breast Augmentation (10 points)Two similar surgeries, breast reconstruction and breast augmentation, have different prices. Breast augmentation is cosmetic surgery not covered by health insurance. Patients who want the surgery must pay for it themselves. Breast reconstruction following breast removal due to cancer is covered by insurance. The price for one of the surgeries has increased by about 10% each year since 1995 while the other has increased by only 2% per year. Which of the surgeries has the lower inflation rate?
Implementing Incentive Pay Systems (10 points)Would incentive pay work better for employees selling tickets at a movie box office or employees selling clothing at a retail store?

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