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All Textbook Solutions for Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
One of the approaches for the Southern Company to comply with the Clean Air Act is to adopt fuel-switching technology. Do you think this strategic flexibility would have value to Southern Companys shareholders? Why?2E3EIn the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act creates the greatest real option value? How exactly does that alternative save money? Why? Explain why installing a scrubber burns this option.5E6E7E8E1.1CE1.2CE1.3CE1.4CE1.5CE1.6CE1.7CE1.8CE1.9CEAs a value-maximizing aluminum company, should Hydro invest in wind power in Light of the Utsira pilot project? Why or why not?2.2CE2.3CE2.4CEEnergy entrepreneur T. Boone Pickens has proposed converting the trucking fleet in the United States to liquefied natural gas (LNG) and using wind power to replace the missing LNG in electric power production. What infrastructure issues do you see that must be resolved before the Pickens plan could be adopted?For each of the determinants of demand in Equation 2.1, identify an example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the same for each of the determinants of supply in Equation 2.2. In each instance, would equilibrium market price increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf and Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries.2E3E4E5E6E7E1.1CE1.2CE1.3CEThe Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomacs closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the arc cross elasticity of demand between Potomacs oven and the competitive Spring City model? Would you say that these two firms are very dose competitors? What other factors could have influenced the observed relationship? If Potomac knows that the arc price elasticity of demand for its ovens is 3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?The price elasticity of demand for personal computers is estimated to be 2.2. If the price of personal computers declines by 20 percent, what will be the expected percentage increase in the quantity of computers sold?3E4E5E6EIn an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is 1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?9E10EFederal excise taxes on gasoline vary widely across the developed world. The United States has the lowest taxes at USD $0.40 per gallon (or £0.07 per liter), Canada has taxes of $0.60 per gallon, Japan and much of Europe is $2.00 per gallon, while Britain has the highest tax at $2.83 a gallon or £0.5 per liter. If gasoline taxes are intended to reduce the time losses from road congestion in urban environments and gasoline pre-tax costs about £0.40 per liter, why might the optimal tax in Canada be 50 percent higher than in the United States? What would be an explanation for why adjacent countries would have such different estimates of the price elasticity of demand for auto driving?1612E13E1.1CE1.2CE1.3CE1.4CE1.5CE1.6CE1.7CE1.8CEHow many shuts do you recommend selling per color per day? What then is your recommended dollar markup and markup percentage? What dollar margin and percentage margin is that?2.1CE2.2CE2.3CE2.4CE2.5CE2.6CE1E2E3E4E5E6E7E8E9E1.1CEInterpret the coefficients and calculate the price elasticity of soft drink demand.1.3CE1.4CE1E2E3E4E5EThe forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmobiles P. Based on past data, the best estimate of this relationship is S=kYZP where k has been estimated (with past data) to equal 100. If Y=11,000,Z=1,200, and P=20,000, what value would you predict for S? What happens if P is reduced to $17,500? How would you go about developing a value for k? What are the potential weaknesses of this model?2EMetropolitan Hospital has estimated its average monthly bed needs as N=1,000+9X where X=timeperiod(months);January2002=0 N=monthlybedneeds Assume that no new hospital additions are expected in the area in the foreseeable future. The following monthly seasonal adjustment factors have been estimated, using data from the past five years: Forecast Metropolitans bed demand for January, April, July, November, and December 2007. If the following actual and forecast values for June bed demands have been recorded, what seasonal adjustment factor would you recommend be used in making future June forecasts?4EA firm experienced the demand shown in the following table. *Unkown future value to be forecast Fill in the table by preparing forecasts based on a five-year moving average, a three-year moving average, and exponential smoothing (with a w=0.9 and a w=0.3). Note The exponential smoothing forecasts may be begun by assuming Y t+1=Yt. Using the forecasts from 2005 through 2009, compare the accuracy of each of the forecasting methods based on the RMSE criterion. Which forecast would you have used for 2010? Why?The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as QD=18,000+0.4N350PM+90Ps where N=numberofnewhomescompletedintheprimarymarketarea PM=priceoftheMapcotrimmerPS=priceofitscompetitorsSurefiretrimmer In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55. What sales are forecasted for 2010 under these conditions? If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on Mapcos sales? What effect would a 30 percent reduction in the number of new homes completed have on Mapcos sales (ignore the impact of the price cut of the Surefire trimmer)?The Questor Corporation has experienced the following sales pattern over a 10-year period: Compute the equation of a trend line (similar to Equation 5.4) for these sales data to forecast sales for the next year. (Let 2004=0,2005=1, etc., for the time variable.) What does this equation forecast for sales in the year 2014? Use a first-order exponential smoothing model with a w of 0.9 to forecast sales for the year 2014.Bell Greenhouses has estimated its monthly demand for potting soil to be the following: N=400+4X where N=monthlydemandforbagsofpottingsoil X=timeperiodsinmonths(March2006=0) Assume this trend factor is expected to remain stable in the foreseeable future. The following table contains the monthly seasonal adjustment factors, which have been estimated using actual sales data from the past five years: Forecast Bell Greenhouses demand for potting soil in March, June, August, and December 2007. If the following table shows the forecasted and actual potting soil sales by Bell Greenhouses for April in five different years, determine the seasonal adjustment factor to be used in making an April 2008 forecast.Savings-Mart (a chain of discount department stores) sells patio and lawn furniture. Sales are seasonal, with higher sales during the spring and summer quarters and lower sales during the fall and winter quarters. The company developed the following quarterly sales forecasting model: Y t=8.25+0.125t2.75D1t+3.50D3t where Y t=predictedsales(million)inquartert 8.25=quarterlysales(million)whent=0 t=timeperiod(quarter)wherethefourthquarterof2002=0,firstquarterof2003=1,secondquarterof2003=2,... D1t={1forfirst-quarterobservations0otherwiseD2t={1forsecond-quarterobservations0otherwiseD3t={1forthird-quarterobservations0otherwise Forecast Savings-Marts sales of patio and lawn furniture for each quarter of 2010.1.1CEPlot the logarithm of arrivals for each transportation mode against time, all on the same graph. Which now appears to be growing the fastest?Logarithms are especially useful for comparing series with two divergent scales since 10 percent growth always looks the same, regardless of the starting level. When absolute levels matter, the raw data are more appropriate, but when growth rates are whats important, log scales are better.1.4CEIn attempting to formulate a model of the passenger arrival data on cruise ships over time would a nonlinear (perhaps a multiplicative exponential) model be preferable to a linear model of cruise ship arrivals against time? What about in the case of the passenger arrivals by ferry against time?Estimate the double-log (log linear) time trend model for log cruise ship arrivals against log time. Estimate a linear time trend model of cruise ship arrivals against time. Calculate the root mean square error between the predicted and actual value of cruise ship arrivals. Is the root mean square error greater for the double log non-linear time trend model or for the linear time trend model?2.1CE3.1CE3.2CE3.3CE1E2E3E4E5E6E7E8E9E10E11E12E1E2E3E4E5E6E7E8E9E10E11E1.1CE1.2CE1.3CE1.4CE1.5CE1E2E3E1E2E3E4E5E6E7E8E9E1.1CE1.2CE1.3CE1.4CE2.1CE2.2CE2.3CE1E2E3E4E5E1.1CE1.2CE1.3CE1.4CE1.5CE1.6CEAgain, holding the other variables constant, what would be the saving in per-student operating expenditures of an increase in enrollment from 500 to 1,000?1.8CE2.1CE2.2CE2.3CE2.4CE2.5CE2.6CE2.7CE2.8CE2.9CE1E2E3E4E5E6E7E8E9E10E11E1.1CE1.2CE1.3CE1.4CE1.5CE2.1CE2.2CE2.3CE2.4CE1EAjax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firm—Tile King. Ajax produces a multiheaded tunnel wall scrubber that is similar to a model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the possibility of a price war. The pnce charged by Tile King is $20,000. Ajax has the following short-run cost curve: TC=800,0005,000Q+100Q2 Compute the marginal cost curve for Ajax. Given Ajaxs pricing strategy, what is the marginal venue function for Ajax? Compute the profit-maximizing level of output for Ajax. Compute Ajaxs total dollar profits.3E4E5E6E7E8E9E1.1CE1.2CE1.3CE2.1CE2.2CE2.3CE1E2E3E4E5E6E7E1E2E3E4E5E6E7E8E9E10E11E12E13E14E15E1.1CE1.2CE1.3CE1.4CE1E2E1EThe price elasticity of demand for air travel differs radically from first-class (1.3) to unrestricted coach (1.4) to restricted discount coach (1.9). What do these elasticities mean for optimal prices (fares) on a cross-country trip with incremental variable costs (marginal costs) equal to $120?3E4E5E6E7E8EWhat life cycle cost concept begins raising concerns by year 5 with any electric vehicle (EV)? If that issue affected resale value at year 5, would that affect perceived value-in-use? How exactly?1.2CE1.3CE1.4CE1E2E3E1E2E3E4E5E6E7E8E9E10E11E1.1CE1.2CE1.3CE1.4CE1.5CE2.1CE2.2CE2.3CE1E3E4E5E6E7E8E9E10E11E12E1.1CE1.2CE1.3CE1.4CE2.1CE2.2CE2.3CE1E2E3E4E5E6E7E8E9E10E11E1.1CE1.2CE1.3CE2.1CE2.2CE2.3CEA firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?2E