Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 12, Problem 3CACQ
Your store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower
- What is the consumer’s reservation price?
- If your price is $3 and the consumer visits your store, will she purchase the item or continue to search? Explain.
- Suppose the consumer’s cost of each search rises to $16. What is the highest price you can charge and still sell the item to the consumer if she visits your store?
- Suppose the consumer’s cost of each search falls to $2. If the consumer finds a store charging $3, will she purchase at that price or continue to search?
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A network effect, or network externality, exists when: Group of answer choices a firm
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s average total cost rises continuously over the entire ran the customers of one business overlap with those of another competing business. the costs of resources for an industry rises as the number of sellers in an industry expands. the value of a product or service to each consumer increases as the number of users expands.
Harriet McNeil, proprietor of McNeil's Auto Mall, believes that it is good business for her automobile dealership to have more customers on the lot than can be served, as she believes this creates an impression that demand for the automobiles on her lot is high. However, she also understands that if there are far more customers on the lot than can be served by her salespeople, her dealership may lose sales to customers who become frustrated and leave without making a purchase.
Ms. McNeil is primarily concerned about the staffing of salespeople on her lot on Saturday mornings (8:00 a.m. to noon), which are the busiest time of the week for McNeil's Auto Mall. On Saturday mornings, an average of 6.8 customers arrive per hour. The customers arrive randomly at a constant rate throughout the morning, and a salesperson spends an average of one hour with a customer. Ms. McNeil's experience has led her to conclude that if there are two more customers on her lot than can be served at any time…
TRUE OR FALSE?
An increase in price tends to make consumer buy less and sellers to sell more. A price decrease tends to cause the opposite reaction.
An increase in income will shift the demand curve to the left on the graph. A decrease in income will shift the demand curve to the right.
Shifts in either the demand curve alone or the supply curve alone cannot cause a change in the equilibrium point. It is only when both the demand curve and supply curve shift that the equilibrium point is changed.
Chapter 12 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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