Managerial Economics & Business Strategy, 10e Michael Baye, Jeff Prince, 2021 Instructor Solution Manual
Managerial Economics & Business Strategy
( Instructor Solution Manual)
Managerial Economics & Business Strategy, 10e Michael Baye, Jeff Prince, 2021 Instructor Solution Manual
Edition: 10 Edition
Author Name: Michael Baye, Jeff Prince
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Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
- This situation best represents producer-producer rivalry. Here, Southwest is a producer attempting to steal customers away from other producers in the form of lower prices.
- The maximum you would be willing to pay for this asset is the present value, which is
-
- Net benefits are N(Q) = 20 + 24Q – 4Q2.
- Net benefits when Q = 1 are N(1) = 20 + 24 – 4 = 40 and when Q = 5 they are N(5) = 20 + 24(5) – 4(5)2 = 40.
- Marginal net benefits are MNB(Q) = 24 – 8Q.
- Marginal net benefits when are MNB(1) = 24 – 8(1) = 16 and when they are MNB(5) = 24 – 8(5) = -16.
- Setting MNB(Q) = 24 – 8Q = 0 and solving for Q, we see that net benefits are maximized when Q = 3.
- When net benefits are maximized at Q = 3, marginal net benefits are zero. That is, MNB(3) = 24 – 8(3) = 0.
-
- The value of the firm before it pays out current dividends is
.
- The value of the firm immediately after paying the dividend is
.
- The present value of the perpetual stream of cash flows. This is given by
- The completed table looks like this:
Control Variable
Q |
Total Benefits
B(Q) |
Total
Cost C(Q) |
Net Benefits
N(Q) |
Marginal Benefit
MB(Q) |
Marginal Cost
MC(Q) |
Marginal Net
Benefit MNB(Q) |
100 | 1200 | 950 | 250 | 210 | 60 | 150 |
101 | 1400 | 1020 | 380 | 200 | 70 | 130 |
102 | 1590 | 1100 | 490 | 190 | 80 | 110 |
103 | 1770 | 1190 | 580 | 180 | 90 | 90 |
104 | 1940 | 1290 | 650 | 170 | 100 | 70 |
105 | 2100 | 1400 | 700 | 160 | 110 | 50 |
106 | 2250 | 1520 | 730 | 150 | 120 | 30 |
107 | 2390 | 1650 | 740 | 140 | 130 | 10 |
108 | 2520 | 1790 | 730 | 130 | 140 | -10 |
109 | 2640 | 1940 | 700 | 120 | 150 | -30 |
110 | 2750 | 2100 | 650 | 110 | 160 | -50 |
Chapter 1
The Fundamentals of Managerial Economics
Answers to Questions and Problems
- This situation best represents producer-producer rivalry. Here, Southwest is a producer attempting to steal customers away from other producers in the form of lower prices.
- The maximum you would be willing to pay for this asset is the present value, which is
-
- Net benefits are N(Q) = 20 + 24Q – 4Q2.
- Net benefits when Q = 1 are N(1) = 20 + 24 – 4 = 40 and when Q = 5 they are N(5) = 20 + 24(5) – 4(5)2 = 40.
- Marginal net benefits are MNB(Q) = 24 – 8Q.
- Marginal net benefits when are MNB(1) = 24 – 8(1) = 16 and when they are MNB(5) = 24 – 8(5) = -16.
- Setting MNB(Q) = 24 – 8Q = 0 and solving for Q, we see that net benefits are maximized when Q = 3.
- When net benefits are maximized at Q = 3, marginal net benefits are zero. That is, MNB(3) = 24 – 8(3) = 0.
-
- The value of the firm before it pays out current dividends is
.
- The value of the firm immediately after paying the dividend is
.
- The present value of the perpetual stream of cash flows. This is given by
- The completed table looks like this:
Control Variable
Q |
Total Benefits
B(Q) |
Total
Cost C(Q) |
Net Benefits
N(Q) |
Marginal Benefit
MB(Q) |
Marginal Cost
MC(Q) |
Marginal Net
Benefit MNB(Q) |
100 | 1200 | 950 | 250 | 210 | 60 | 150 |
101 | 1400 | 1020 | 380 | 200 | 70 | 130 |
102 | 1590 | 1100 | 490 | 190 | 80 | 110 |
103 | 1770 | 1190 | 580 | 180 | 90 | 90 |
104 | 1940 | 1290 | 650 | 170 | 100 | 70 |
105 | 2100 | 1400 | 700 | 160 | 110 | 50 |
106 | 2250 | 1520 | 730 | 150 | 120 | 30 |
107 | 2390 | 1650 | 740 | 140 | 130 | 10 |
108 | 2520 | 1790 | 730 | 130 | 140 | -10 |
109 | 2640 | 1940 | 700 | 120 | 150 | -30 |
110 | 2750 | 2100 | 650 | 110 | 160 | -50 |
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