Managerial Economics

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P7.6 Optimal Input Mix. The First National Bank received 3,000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper. The most recent ad in a similar advertising campaign in Massachusetts Business, a regional business magazine, generated 1,000 inquiries. Each newspaper ad costs $500, whereas each magazine ad costs $125. A. Assuming that additional ads would generate similar response rates, is the bank running an optimal mix of newspaper and magazine ads? Why or why not? o No, the bank is not running an optimal mix of newspaper and magazine ads because the optimal combination would occur when MPn / Pn = MPm / Pm  newspaper output: 3,000 / 500 = 6 and magazine output:…show more content…
**Marginal Product measures additional output from one more unit of the variable input.** o MPA = MS/MA = ∂Sales (units) / ∂Advertising (OR ∂Q/∂A) = 100 - A B. What is the rule for determining the optimal amount of a resource to employ in a production system? Explain the logic underlying this rule. o The rule for determining the optimal amount of a resource to employ is: MRPA = PA (see slide 17) MPA * MRQ = PA (see slide 9) The above equation turns to: ∂Q/∂A * ∂TR/∂Q = ∂TC/∂A  Q’s cancel each other out and the equation turns to: ∂TR/∂A = ∂TC/∂A This leads to Marginal Total Revenue (MTR) = Marginal Total Cost (MTC), which means the inflow = outflow. C. Using the rule for optimal resource employment, determine the profit-maximizing number of radio ads. o Using the above equation MPA * MRQ = PA  (100-A )* $2 = $100 $200-2A = $100 $100= 2A  A=$50 P7.9 Net Marginal Revenue. Crane, Poole & Schmidt, LLC, is a successful Boston-based law firm. Worker productivity at the firm is measured in billable hours, which vary between partners and associates. Partner time is billed to clients at a rate of $250 per hour, whereas associate time is billed at a rate of $125 per hour. On average, each partner generates 25 billable hours per 40-hour workweek, with 15 hours spent on promotion, administrative, and supervisory responsibilities. Associates generate an average of 35 billable hours per 40-hour

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