MBA 540 Mid-term Exam
1.
(10 pts.)Stella Ann Freeman is having a difficult time
deciding whether or not
to purchase a new car. How would understanding the concept of
opportunity costs
help her make a decision?
2.
(10 pts.) Referring to the table below, hiring a driver costs
$10. Each machine
costs $100. Which method should he use and why?
3. (10 pts.) Enron will be an example of a dysfunctional
company for
many years to come. It was clearly a company riddled with
fraud and excess and
its conduct drove it into bankruptcy. The text argues that
individual behavior
was not at the core of Enron’s problems. What were the
problems with this
corporation from an organizational architecture point of
view?
4. (10 pts.) For many
corporations such as utility companies, a major portion of
the cost of
production is fixed in the short run. Should these very large
fixed costs be
ignored when the executives are making output and pricing
decisions? Why?
5. (10pts.)Choose a real-life example of a firm that you
think is part of an oligopoly market and describe the
characteristics of the
market structure that explain why the firm would be
classified assuch.
6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities:
?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5
? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is
the cross
elasticity of demand between DD glazed doughnuts and Krispy
Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD
glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.
a) If you want to increase your sales of
glazed doughnuts by 30%, in what direction and by how much do
you need to
change the price?
b) If you make the percentage price
change that you calculated in part a) will total revenue
increase or
decrease? How do you know?
c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage
and in what
direction?
d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts
glazed doughnuts will
change by what percentage and in what direction?
e) If average income increases by 5% by
what percentage and in what direction will the demand for
Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an
inferior good and
how do you know?
f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and
dryer combinations.
Two pricing strategies exist: price high or price low. The
profit from each of
the four possible combinations of decisions is given in the
following payoff
matrix:
Westinghouse’s price
High
($4000)
Low
($2000)
General Electric’s
price
High ($4000)
W: $10,000,000
GE: $10,000,000
W: $16,000,000
GE: $-4,000,000
Low ($2000)
W: $-4,000,000
GE: $16,000,000
W: $4,000,000
GE: $4,000,000
Payoffs
in dollars of profit.
a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the
best financial
outcome?
b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?
c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000
and earn a profit of
$4,000,000 and for General Electric to set its price at
$2,000 and earn a
profit of $4,000,000.
d) (2 pts.) Why do we
see that the strategy that results is not the strategy that
offers both players
the best financial outcome?
MBA 540 Mid-term Exam
1.
(10 pts.)Stella Ann Freeman is having a difficult time
deciding whether or not
to purchase a new car. How would understanding the concept of
opportunity costs
help her make a decision?
2.
(10 pts.) Referring to the table below, hiring a driver costs
$10. Each machine
costs $100. Which method should he use and why?
3. (10 pts.) Enron will be an example of a dysfunctional
company for
many years to come. It was clearly a company riddled with
fraud and excess and
its conduct drove it into bankruptcy. The text argues that
individual behavior
was not at the core of Enron’s problems. What were the
problems with this
corporation from an organizational architecture point of
view?
4. (10 pts.) For many
corporations such as utility companies, a major portion of
the cost of
production is fixed in the short run. Should these very large
fixed costs be
ignored when the executives are making output and pricing
decisions? Why?
5. (10pts.)Choose a real-life example of a firm that you
think is part of an oligopoly market and describe the
characteristics of the
market structure that explain why the firm would be
classified assuch.
6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities:
?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5
? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is
the cross
elasticity of demand between DD glazed doughnuts and Krispy
Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD
glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.
a) If you want to increase your sales of
glazed doughnuts by 30%, in what direction and by how much do
you need to
change the price?
b) If you make the percentage price
change that you calculated in part a) will total revenue
increase or
decrease? How do you know?
c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage
and in what
direction?
d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts
glazed doughnuts will
change by what percentage and in what direction?
e) If average income increases by 5% by
what percentage and in what direction will the demand for
Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an
inferior good and
how do you know?
f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and
dryer combinations.
Two pricing strategies exist: price high or price low. The
profit from each of
the four possible combinations of decisions is given in the
following payoff
matrix:
Westinghouse’s price
High
($4000)
Low
($2000)
General Electric’s
price
High ($4000)
W: $10,000,000
GE: $10,000,000
W: $16,000,000
GE: $-4,000,000
Low ($2000)
W: $-4,000,000
GE: $16,000,000
W: $4,000,000
GE: $4,000,000
Payoffs
in dollars of profit.
a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the
best financial
outcome?
b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?
c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000
and earn a profit of
$4,000,000 and for General Electric to set its price at
$2,000 and earn a
profit of $4,000,000.
d) (2 pts.) Why do we
see that the strategy that results is not the strategy that
offers both players
the best financial outcome?
MBA 540 Mid-term Exam
1.
(10 pts.)Stella Ann Freeman is having a difficult time
deciding whether or not
to purchase a new car. How would understanding the concept of
opportunity costs
help her make a decision?
2.
(10 pts.) Referring to the table below, hiring a driver costs
$10. Each machine
costs $100. Which method should he use and why?
3. (10 pts.) Enron will be an example of a dysfunctional
company for
many years to come. It was clearly a company riddled with
fraud and excess and
its conduct drove it into bankruptcy. The text argues that
individual behavior
was not at the core of Enron’s problems. What were the
problems with this
corporation from an organizational architecture point of
view?
4. (10 pts.) For many
corporations such as utility companies, a major portion of
the cost of
production is fixed in the short run. Should these very large
fixed costs be
ignored when the executives are making output and pricing
decisions? Why?
5. (10pts.)Choose a real-life example of a firm that you
think is part of an oligopoly market and describe the
characteristics of the
market structure that explain why the firm would be
classified assuch.
6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities:
?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5
? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is
the cross
elasticity of demand between DD glazed doughnuts and Krispy
Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD
glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.
a) If you want to increase your sales of
glazed doughnuts by 30%, in what direction and by how much do
you need to
change the price?
b) If you make the percentage price
change that you calculated in part a) will total revenue
increase or
decrease? How do you know?
c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage
and in what
direction?
d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts
glazed doughnuts will
change by what percentage and in what direction?
e) If average income increases by 5% by
what percentage and in what direction will the demand for
Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an
inferior good and
how do you know?
f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and
dryer combinations.
Two pricing strategies exist: price high or price low. The
profit from each of
the four possible combinations of decisions is given in the
following payoff
matrix:
Westinghouse’s price
High
($4000)
Low
($2000)
General Electric’s
price
High ($4000)
W: $10,000,000
GE: $10,000,000
W: $16,000,000
GE: $-4,000,000
Low ($2000)
W: $-4,000,000
GE: $16,000,000
W: $4,000,000
GE: $4,000,000
Payoffs
in dollars of profit.
a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the
best financial
outcome?
b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?
c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000
and earn a profit of
$4,000,000 and for General Electric to set its price at
$2,000 and earn a
profit of $4,000,000.
d) (2 pts.) Why do we
see that the strategy that results is not the strategy that
offers both players
the best financial outcome?
MBA 540 Mid-term Exam
1.
(10 pts.)Stella Ann Freeman is having a difficult time
deciding whether or not
to purchase a new car. How would understanding the concept of
opportunity costs
help her make a decision?
2.
(10 pts.) Referring to the table below, hiring a driver costs
$10. Each machine
costs $100. Which method should he use and why?
3. (10 pts.) Enron will be an example of a dysfunctional
company for
many years to come. It was clearly a company riddled with
fraud and excess and
its conduct drove it into bankruptcy. The text argues that
individual behavior
was not at the core of Enron’s problems. What were the
problems with this
corporation from an organizational architecture point of
view?
4. (10 pts.) For many
corporations such as utility companies, a major portion of
the cost of
production is fixed in the short run. Should these very large
fixed costs be
ignored when the executives are making output and pricing
decisions? Why?
5. (10pts.)Choose a real-life example of a firm that you
think is part of an oligopoly market and describe the
characteristics of the
market structure that explain why the firm would be
classified assuch.
6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities:
?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5
? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is
the cross
elasticity of demand between DD glazed doughnuts and Krispy
Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD
glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.
a) If you want to increase your sales of
glazed doughnuts by 30%, in what direction and by how much do
you need to
change the price?
b) If you make the percentage price
change that you calculated in part a) will total revenue
increase or
decrease? How do you know?
c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage
and in what
direction?
d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts
glazed doughnuts will
change by what percentage and in what direction?
e) If average income increases by 5% by
what percentage and in what direction will the demand for
Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an
inferior good and
how do you know?
f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and
dryer combinations.
Two pricing strategies exist: price high or price low. The
profit from each of
the four possible combinations of decisions is given in the
following payoff
matrix:
Westinghouse’s price
High
($4000)
Low
($2000)
General Electric’s
price
High ($4000)
W: $10,000,000
GE: $10,000,000
W: $16,000,000
GE: $-4,000,000
Low ($2000)
W: $-4,000,000
GE: $16,000,000
W: $4,000,000
GE: $4,000,000
Payoffs
in dollars of profit.
a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the
best financial
outcome?
b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?
c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000
and earn a profit of
$4,000,000 and for General Electric to set its price at
$2,000 and earn a
profit of $4,000,000.
d) (2 pts.) Why do we
see that the strategy that results is not the strategy that
offers both players
the best financial outcome?
