Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
thumb_up100%
Chapter 5, Problem 17PAA
A local restaurateur who had been running a profitable business for many years recently purchased a three-way liquor license. This license gives the owner the legal right to sell beer. wine, and spirits in her restaurant. The cost of obtaining the three-way license was about $90,000 since only 300 such licenses are issued by the state. While the license is transferable, only $75,000 is refundable if the owner chooses not to use the license. After selling alcoholic beverages for about one year, the restaurateur came to the realization that she was losing dinner customers and that her profitable restaurant was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing advertisements in various newspapers and restaurant magazines across the state offering to sell the license for $80,000. After a long wait, she finally received one offer to purchase her license for $77,000. What is your opinion of the restaurateur’s decisions? Would you recommend that she accept the $77,000 offer?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Salar de Uyuni basin in Bolivia contains one of the world's largest deposits of lithium. However, this basin can also be used to grow quinoa, one of the region's most important crops, and is the site of considerable tourism.
A study estimated the value of mining lithium from this basin to be worth $380 million, quinoa farming to be worth $11 million, and tourism to be worth $27 million. Assume that if the basin is mined that it cannot be used for farming or tourism.
The opportunity cost of mining the basin is _____, and (based on these numbers) Bolivia _____ mine for lithium here.
-$11 million; should
-$38 million; should
-$27 million; should
-$418 million; should not
. As the owner of Barney’s Broilers—a fast-food chain—you see an increase in the demand for broiled chicken as consumers become more health conscious and reduce their consumption of beef and fried foods. As a result, you believe it is necessary to purchase another oven to meet the increased demand. To finance the oven you go to the bank seeking a loan. The loan officer tells you that your revenues of $750,000 are insufficient to support additional debt. To qualify for the loan, Barney’s Broilers’s revenue would need to be $50,000 higher. In developing a strategy to generate the additional revenue, you collect data on the price (in cents) per pound you charge customers and the related quantity of chicken consumed per year in pounds. This information is contained in the file called Q18.xls available online at www.mhhe.com/baye8e It is also available in the ‘Assignments’ section of the class Blackboard page in ‘MBA 6150 HW 3 Q18 data set’ file. Use that data and a log-linear demand…
Royal 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?
Chapter 5 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars invested in the stock market. Fund participants recently voted on a proposal that would have placed strict limits on the amount of compensation paid to CREF executives. Why do you think 75 percent of the participants voted against the proposal? Provide an economic argument against the proposal.arrow_forwardWhen a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway. Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Valerie places a value of $15,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Valerie simply bids $15,000/2=$7,500 and wins the piece of art. The expected price paid by Valerie, with no other bidders present, is $________.. Suppose the owner of the artwork manages to recruit another bidder, Antonio, to the auction. Antonio is known to value the art piece at $12,000. The expected price paid by Valerie, given the presence of the second bidder Antonio, is $_______. .arrow_forwardTakaful and Karama is a social program that has been launched by the Egyptian government in 2015 to support the disadvantaged and most vulnerable families and elderly citizens. The part of the program that is directed to support families represents a conditional cash transfer that requires families to keep their children in school until they are 18 years old and follow up visits to local health care units to be eligible for receiving the cash transfer. Amira is an Egyptian ten years old child from a poor family who has previously dropped out of school. To be eligible for the fund, her mother enrolled her in school again. Amira is expected to remain in school until she is 18 years old. a) Explain, with the support of illustrative charts, the impact of Amira's returning to school until she is 18 on her potential life earning stream. b) How will that social program impact the national human capital of Egypt in the future, and specifically the characteristics of the Egyptian national…arrow_forward
- Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $65,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the…arrow_forwardIn this module we learned that, despite increases in the cost, the value of higher education has increased over time. How can college be made more affordable? Revenues earned by colleges and universities come from three main sources: Tuition and fees paid by students, which have increased faster than the cost of living. Support from governments at the federal, state and local levels. This support is paid for through tax revenues. Even private colleges and universities obtain funding from the government, but government support has declined at all levels in recent years. Alumni contributions. What has caused the cost of college to increase so much? (Not every college has a fancy gym or an Olympic sized pool with a lazy river.)arrow_forward"Companies should use investment entry modes whenever possible because they offer the greatest control over business operations." Do you agree or disagree with this statement? Are there times when other market entry modes offer greater control? How (if at all) do you think a company's product influences the choice of entry mode? Cite the example of 2 products that would influence the choice of entry mode in a different way.arrow_forward
- Case: As part of the most recent collective bargaining agreement with employees, an employer must offer medical insurance at "reasonable, non-profit rates." The employer plans to self-insure in place of using a private insurance company. Statistical evidence suggests that the average household currently spends $450 per year for medical bills and $80 for health screening and routine check-ups. Administrative costs are expected to average $30 per family. The collective bargaining agreement dictates that the plan's coverages and rates be fixed for a period of two years. The auditor considers the choice of the plan to be extremely important. Consequently, the auditor has asked you to evaluate the three proposals listed below. Proposal A would charge a $350 premium with no deductible. Coverage is extended to pre-existing conditions, but to cover the non-deductible clause, health screening and routine check-ups are not covered. Proposal B charges a $250 premium with a $200…arrow_forwardThe mayor of Green City is considering whether to institute a Covid vaccine mandate for public employees. The fire chief opposes vaccination, and has threatened to resign if a mandate is instituted. The mayor believes that instituting a mandate is critical to getting Covid under control, and thus not instituting the mandate would costs the city -50 utility. However, the fire chief is critical to maintaining public safety. If the fire chief resigns, it would cost the city 75 utility. The fire chief believes a mandate would be an invasion of his personal freedom, costing him 20 utility. The mandate only impacts the fire chief if he does not resign. However, resigning his job as fire chief would cost him 40 utility. Draw this game. Identify how many subgames it contains. Then, solve the game to find all subgame perfect Nash equilibria.arrow_forwardMany 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.…arrow_forward
- Recently the pharmaceutical company Mylan attempted a hostile takeover of Recently the pharmaceutical company Mylan attempted a hostile takeover of generic drugmaker Perrigo. Perrigo reported a net loss the year before the attempted takeover, which was partially driven by a spike in administrative expenses. Suppose that Mylan perceives there is a 70 percent probability that Perrigo’s loss is merely the transitory result of administrative expenses needed to fight the takeover. In this case, the present value of Perrigo’s stream of profits is $30 billion. However, Mylan perceives that there is a 30 percent chance that Perrigo’s net loss stems from long-term structural changes in the demand for Perrigo’s services, and that the present value of its profit stream is only $6 billion. You are a decision maker at Mylan and know that your current takeover bid is $21 billion. You have just learned that a rival bidder-Abbott Laboratories-perceives that there…arrow_forwardYour company has a customer who is shutting down a production line, and it is your responsibility to dispose of the extrusion machine. The company could keep it in inventory for a possible future product and estimates that the reservation value is $350,000. Your dealings on the secondhand market lead you to believe that if you commit to a price of $400,000, there is a 0.5 chance you will be able to sell the machine. If you commit to a price of $450,000, there is a 0.2 chance you will be able to sell the machine. If you commit to a price of $500,000, there is a 0.15 chance you will be able to sell the machine. These probabilities are summarized in the following table. For each posted price, enter the expected value of attempting to sell the machine at that price. (Hint: Be sure to take into account the value of the machine to your company in the event that you are not be able to sell the machine.) Posted Price Probability of Sale Expected Value ($) ($) $500,000…arrow_forwardYou are the mayor of a small town with 2000 residents. The head of your economic development agency recently conducted a survey in which the 2000 residents said that a public concert in the centre of town would be worth $20 to each of them. Since it costs only $5000 to hold the concert, you organized and held the concert, which everyone in town enjoyed. But when you asked for donations to pay for the concert, you only collected $30 in total. What do you know? Question 88 options: The concert was an example of the Tragedy of the Commons. From the standpoint of total costs and benefits, the cost of the concert certainly exceeded the benefit. The survey certainly overstated how much the concert was worth to each resident. Residents of the town were probably free riders.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education
The growing economy of the electric car industry; Author: TRT World;https://www.youtube.com/watch?v=Qh2jXn_akmk;License: Standard Youtube License