Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 10MC
You are considering entry into a market in which there is currently only one producer (incumbent). If you enter, the incumbent can take one of two strategies,
- a. you believe demand is inelastic.
- b. you believe the probability that the incumbent will price low is greater than 0.75.
- c. you believe the probability that the incumbent will price low is less than 0.75.
- d. you believe the market size is growing.
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You are considering entry into a market in which there is currently only one producer (incumbent). If you enter, the incumbent can take one of two strategies, price low or price high. If he prices high, then you expect a $60K profit per year. If he prices low, then you expect a $20K loss per year. You should enter if
Group of answer choices
you believe demand is inelastic.
you believe demand is elastic.
you belive the probability of low price is less than 75%.
you believe the probability of low price is less than 25%. .
the chance is at least 50/50.
You are managing a competitive corn farm that faces random demand. You must decide how much corn to produce before observing the actual price. As the
2
adjacent figure shows, the price will be $12 or $6 per bushel. The probability the price will be $12 is
and the probability that the price will be $6 is -
Your
MC
3
3
$14
marginal cost curve is also included in the figure.
PH=MRH
$12
The quantity of corn that maximizes expected profit is bushels.
$10
(Carefully enter your response considering the units on the axes of the given figure.)
S8
The quantity you would produce if you knew the actual price was $12 is
bushels.
L= MRL
The quantity you would produce if you knew the actual price was $6 is bushels
$6
Suppose you produce the quantity of corn that maximizes expected profit, compared to what you would produce if you knew the actual price before producing.
$4-
The amount of profit lost if the actual price is $12 is $
The amount of profit lost if the actual price is $6 is $
(Enter a…
Bill is considering opening a new bookstore near the university campus. There are two possible sites under consideration. One is relatively small, while the other is large. If
he opens at small site and demand is good, he will generate a profit of $60,000. If demand is low, he will lose $20,000. If he opens at large site and demand is high he will
generate a profit of $90,000, but he will lose $40,000 if demand is low. He also has decided that he will open at one of these sites. He believes that there is a 60 percent
chance that demand will be high. He assigns the following utilities to the different profits:
U(60,000) = ?
U(-20,000) = 0.20
U(90,000) = 1
U(-40,000) = 0
For what value of utility for $60,000, will Bill be indifferent between the two alternatives? (Show all your work)
Chapter 17 Solutions
Managerial Economics: A Problem Solving Approach
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