Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits
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Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits
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- BK Books is an online book retailer that also has 10,000 “bricks and mortar” outlets worldwide. You are a risk-neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms and contacts, the students you interview ultimately differ only with respect to the wage that they are willing to accept. About 10 percent of acceptable candidates are willing to accept a salary of $140,000, while 90 percent demand a salary of $190,000. There are two phases to the interview process that every interviewee must go through. Phase 1 is the initial one-hour on-campus interview. All candidates interviewed in Phase 1 are also invited to Phase 2 of the interview, which consists of a five-hour office visit. In all, you spend six hours interviewing each candidate and value this time at $2,500. In addition, it costs a total of $8,000 in travel expenses to interview…BK Books is an online book retailer that also has 10,000 “bricks and mortar”outlets worldwide. You are a risk-neutral manager within the CorporateFinance Division and are in dire need of a new financial analyst. You only interview students from the top MBA programs in your area. Thanks to your screening mechanisms and contacts, the students you interview ultimately differ only with respect to the wage that they are willing to accept. About 10 percent of acceptable candidates are willing to accept a salary of $140,000, while 90 percent demand a salary of $190,000. There are two phases to the interview process that every interviewee must go through. Phase 1 is the initial one-hour on-campus interview. All candidates interviewed in Phase 1 are also invited to Phase 2 of the interview, which consists of a five-hour office visit. In all, you spend six hours interviewing each candidate and value this time at $2,500. In addition, it costs a total of $8,000 in travel expenses to interview each…Assume there are two companies in the region, A and B. You currently work for Company B. Both companies service the entire market and have a combined market share of 100%. At the start of the period, A and B split the market evenly with 50% share each. However, A has adopted a new customer retention tool and has projected the following switching matrix. TO FROM A B A 0.8 0.2 B 0.3 0.7 Given this switching matrix. 1 - What is the projected Market Share for Company A next period? 2- Assume that each customer has a profitability of $30 each year. There are 10,000 customers in the market. How much profit per year, in the long run and assuming no other costs or changes to the market, can we assume that B will lose due to this new technology compared to their prior position?
- The perfect competitor can produce as much as it wants or as little as it wants with no effects on market price whatsoever. True False Oligopolies and monopolies attempt reduce output and raise price, thereby incurring overcapacity and waste to society. True False Redistribution of income from wealthier individuals to lower-income individuals by government in the form of higher taxes and progressive tax systems actually tends to lower prosperity because it weakens the link between productive activity and the reward derived from it, encourages resources to flow into wasteful rent-seeking activities, as well as higher tax rates required to finance redistribution result in resources being devoted toward tax avoidance activities. True False Decreasing the percentage tariff price on an imported good will result in greater market share for the foreign producer in the domestic country. True FalsePrice comparison services on the Internet (as well as “shopbots”) are a popular way for retailers to advertise their products and a convenient way for consumers to simultaneously obtain price quotes from several firms selling an identical product. Suppose that you are the manager of Digital Camera, Inc., a firm that specializes in selling digital cameras to consumers that advertises with an Internet price comparison service. In the market for one particular high-end camera, you have only one rival firm—The Camera Shop—with which you’ve competed for the last four years by setting prices day after day. Being savvy entrepreneurs, the ease of using the Internet to monitor rival firms’ prices has enabled you and your rival to charge extremely high prices for this particular camera. In a recent newspaper article, you read that The Camera Shop has exhausted its venture capital and that no new investors are willing to sink money into the company. As a result, The Camera Shop will discontinue…Assuming Company ABC currently holds the largest market share in a town, making it the dominant player. Its only competitor, Company XYZ, sells a similar product but has a smaller market share. Presently, ABC earns a profit of $1,800, while XYZ earns $1,200. ABC is now confronted with a challenge: its rival, XYZ. is signaling a potential price reduction to attract more customers. ABC has two strategic options: lower its price or maintain the price. If ABC reduces its price before XYZ does, it could potentially increase its profit to $2, 000, while XYZ might see its profit halve. However, if both ABC and XYZ lower their prices, leading to a price war, ABC's profit could drop by $200, and XYZ's profit could decrease by $300. On the other hand, if ABC chooses to retain its current pricing while XYZ reduces its price, ABC's profit might decline to $1.300. Meanwhile, XYZ could potentially attract more customers and increase its profit to approximately $1, 500. Illustrate the market…
- In _____markets, there is no unused capacity, and division managers can buy and sell as much of a product or service as they want at the market price. In such settings, using the market price as the transfer price motivates division managers to transact internally and to take exactly the same actions as they would if they were transacting in the external market. imperfectly competitive monopoly oligopoly perfectly competitive none of the aboveRoyal Dutch Shell has been doing business in Nigeria since the 1920s, and has announced new plans to develop oil and gas projects there. However, over the years Shell has confronted a series of episodes involving country risk. Shell’s operations are centred in Nigeria’s Ogoni region, where the local citizens have protested Shell’s drilling and refining activities, which are said to spoil the natural environment and reduce the amount of available farmland. Protestors also accuse Shell of extracting wealth from the region without adequately compensating local residents. Ogonis sabotaged Shell’s operations to such an extent that the firm suspended parts of its Nigerian operations. Shell also came under pressure to divest its Nigerian operations and to pay reparations to the locals. What proactive steps can Shell take to anticipate future country risk? What should Shell do to deal more effectively with country risk?Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? (Hint: What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?)
- Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?Industry A consists of four firms, each of which has an equal share of the market. What is the Herfindahl–Hirschman index for the industry?Many police officer positions require the applicant to have a college degree, even though the tasks of a police officer rarely call upon college course material. Suppose two individuals who do not have college degrees are considering applying to the police force. Ginny is considering applying for an officer position and plans on working for the police force for a period of time, over which she would earn approximately $500,000 (in present discounted value) in earnings while in the position. Kenji is also considering applying, and plans on working as an officer for a period of time, over which he would earn approximately $10,000 (in present discounted value) in lifetime earnings while in the position. Also suppose that present value of obtaining a college degree, which is required to submit a job application to the police department, is $100,000. Use the following table to indicate whether each individual would likely apply, or not, given the cost of obtaining a college degree.…