ECONOMICS QUESTION PARAPHRASING NEEDED ON QUESTIONS

ECONOMICS QUESTION PARAPHRASING NEEDED ON QUESTIONS MBA 540 Mid-term Exam

1. (10 pts.)Stella
Ann Freeman is having a difficult time deciding whether or not to purchase a
new car. How would understanding the concept of opportunity costs help her make
a decision?

2.
(10 pts.) Referring to the table below, hiring a driver costs $10. Each machine
costs $100. Which method should he use and why?

3. (10 pts.) Enron will be an example of a dysfunctional
company for many years to come. It was clearly a company riddled with fraud and
excess and its conduct drove it into bankruptcy. The text argues that
individual behavior was not at the core of Enron’s problems. What were the
problems with this corporation from an organizational architecture point of
view?

4. (10 pts.) For many
corporations such as utility companies, a major portion of the cost of
production is fixed in the short run. Should these very large fixed costs be
ignored when the executives are making output and pricing decisions? Why?

5. (10pts.)Choose a
real-life example of a firm that you think is part of an oligopoly market and
describe the characteristics of the market structure that explain why the firm
would be classified assuch.

6. (10 pts.; 2 pts each)You
are the manager for Dunkin Donuts and know the following elasticities:

?= 1.5 ?I = 1.2 ? xy1 = 0.5 ? xy2 = -0.5

? is the
price elasticity of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1is the cross
elasticity of demand between DD glazed doughnuts and Krispy Kreme (KK) glazed
doughnuts, ?xy2is thecrosselasticity
of demand between DD glazed doughnuts andDD French Vanilla coffee, and ?
I is the
income elasticity of DD glazed doughnuts.

a)
If you want to increase your sales of
glazed doughnuts by 30%, in what direction and by how much do you need to
change the price?

b)
If you make the percentage price change
that you calculated in parta)
will total revenue increase or decrease?
How do you know?

c)
Krispy Kreme lowers its price of glazed
doughnuts by 20%. The demand for Dunkin
Donuts glazed doughnuts will change by what percentage and in what direction?
d)
Dunkin Donuts raises the price of its French Vanilla coffee by
15%. The demand for Dunkin Donuts glazed doughnuts will change by what percentage
and in what direction?

e)
If average income increases by 5% by what percentage and in what
direction will the demand for Dunkin Donuts glazed doughnuts change? Are DD
glazed doughnuts a normal good or an inferior good and how do you know?

7. (10 pts.)
Westinghouse and General Electric are competing on the newest version of
clothes washer and dryer combinations. Two pricing strategies exist: price high
or price low. The profit from each of the four possible combinations of
decisions is given in the following payoff matrix:

Westinghouse’s price

High ($4000)

Low ($2000)

General Electric’s
price

High ($4000)

W: $10,000,000

GE: $10,000,000

W: $16,000,000

GE: $-4,000,000

Low ($2000)

W: $-4,000,000

GE: $16,000,000

W: $4,000,000

GE: $4,000,000

Payoffs in dollars of profit.

a) (2 pts.) Which strategy offers both
Westinghouse and General Electric the best financial outcome?

b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?

c) (4 pts.) The Nash equilibrium is for Westinghouse
to set its price at __________ and earn a profit of __________ and for General
Electric to set its price at ______________ and earn a profit of _____________.

d) (2 pts.) Why do we see that the strategy
that results is not the strategy that offers both players the best financial
outcome?