Question BUS 640 Managerial Economics Complete Class Week 1-6 All Assignments – Discussion Questions

Week 1 Economics of Risk and Uncertainty Applied Problems.Please, complete the following 3 applied problems in a Word or Excel document. Show all your calculations and explain your results. Submit your assignment in the drop box by using the Assignment Submission button.
1. A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump-sum of $10mln, or in parts, where $5.5mln can be provided in year 1, and another $5.5mln can be provided in year 2. Assuming the opportunity interest rate is 6%, what is the present value of the second alternative? Which of the two alternatives should be chosen and why?
How would your decision change if the opportunity interest rate was 12%? Please, show all your calculations.
2. Volkswagen is considering opening an Assembly Plant in Chattanooga, Tennessee, for the production of its 2012 Passat, tailored for the US market. The CEO of the company is considering two potential options for the size of the plant: one is a large size with a projected annual production of 150,000 cars, and the other one is a smaller size plant, which is cheaper to build, but can only produce up to 80,000 cars per year. Depending on the expected level of demand for these cars in the US, Volkswagen has to decide which option is more profitable. The discount rate is 6% and for simplicity purposes, the CEO is only evaluating a two-year horizon. The initial factory setup cost, the expected demand scenarios, profit, and probabilities are shows in the below table. Calculate the Net Present Value in each of the two options. Which option should the CEO choose and why? Please, show all your calculations.
3. An angel investor is considering investing in one of two start-up businesses and is evaluating the expected returns along with the risk of each option in order to choose the better alternative.
Business 1 is an innovative protein energy drink, which has ENPV of $100,000 with a standard deviation of $40,000.
Business 2 is a unique chicken wings dipping sauce with an ENPV of $60,000 and a standard deviation of $25,000.
a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor, assuming that he/she is risk-averse.
b) Apply the maximin criterion, assuming that the worst outcome in Business 1 is to lose $5,000, whereas the worst outcome in Business 2 is to make only $5,000 in profit.
c) If you were the angel investor, what is your certainty equivalent for these two projects? Are you risk-averse, risk-neutral, or risk-lover?

Week 1 DQ1 Firm Objectives.
Why do some business firms pursue a triple-bottom-line outcome while others focus only on profit maximization? Please, use a real company example to illustrate your points
Week 1 DQ2 Decision Making Under Uncertainty.
To save on gasoline expenses, Edith and Mathew agreed to carpool together for traveling to and from work. Edith preferred to travel on I-20 highway as it was usually the fastest, taking 25 minutes in the absence of traffic delays. Mathew pointed out that traffic jams on the highway can lead to long delays making the trip 45 minutes. He preferred to travel along Shea Boulevard, which was longer (35 minutes), but rarely had traffic jams. Edith agreed that in case of traffic jams, Shea Boulevard was a reasonable alternative. Neither of them knows the state of the highway ahead of time.
After driving to work on the I-20 highway for 1 month (20 workdays), they found the highway to be jammed 3 times. Assuming that this month is a good representation of all months ahead, should Edith and Mathew continue to use the highway for traveling to work?

Week 2 Consumer Demand Analysis and Estimation Applied Problems.
Please, complete the following 3 applied problems in a Word or Excel document. Show all your calculations and explain your results. Submit your assignment in the drop box by using the Assignment Submission button.
1. Roshima is researching universities where she could study for her MBA degree. She is considering 3 major attributes that she considers important in her choice: ranking, price, and location. The value she places on each attribute, however, differs according to whether she remains full-time employed during her studies or quits her job and focuses on her degree. If she continues to work full time and takes all her courses online, then ranking is the most important attribute, twice as important as price and three times as important as location. If she quits her job and attends school full time, then location becomes three times as important as ranking and twice as important as price. She is considering two universities, respectively, the MBA program at Arizona State University (ASU) and the MBA program at University of Phoenix (UOP), both of which are priced at approximately $25,000. She has rated each attribute on a scale of 1 to 100 for each of the two schools.
a. Which of the two options should Roshima pursue of she wants to keep her full-time job? (Calculate the total expected utility from each school option and compare. Graph is not required)
b. Which of the two options should she pick if she plans to quit her job and dedicate to her studies?
c. Which option should she pursue if the probability of being laid off and unable to find a new job is estimated as 0.6? Show your calculations and explain your reasoning.
2. The demand function for Einstein Bagels has been estimated as follows:
– 40.73Px + 84.17Py + 0.55Ax
where Qx represents thousands of bagels; Px is the price per bagel; Py is the average price per bagel of other brands of bagels; and Ax represents thousands of dollars spent advertising Einstein Bagels. The current values of the independent variables are , , and
a. Calculate the price elasticity of demand for Einstein’s Bagels and explain what it means.
b. Derive an expression for the (inverse) demand curve for Einsteins’s Bagels.
c. If the cost of producing Einstein’s Bagels is constant at $0.10 per bagel, should they reduce price and thereafter, sell more bagels (assume profit maximization is the company’s goal)?
d. Should Einstein Bagels spend more on advertising?
3. The consulting firm that you work for has been hired by the US Government to provide an independent analysis of the demand-side effects of a contemplated increase in the tax on gasoline. They provide you with a data set relating to the period 1962-1987, which they say contains valuable historic lessons relating to the impact of volatile pump prices due to the supply restrictions imposed by the Organization of Petroleum Exporting Countries (OPEC), and the Corporate Average Fuel Economy (CAFE) regulations that required car manufacturers to increase the fuel efficiency of the cars they sold, while at the same time Real Disposable Income (RDI) per capita was rising, the number of passenger cars (NPC) almost doubled, and inflation was pushing up the Consumer Price Index (CPI).
Where: Qx is the gasoline consumption by passenger cars (in millions of gallons);
Px is the retail (pump) price of gasoline, in cents per gallon;
NPC is the number of registered passenger cars (in thousands);
MPG is the national average of miles travelled per gallon of gasoline;
RDI is Real Disposable Income per capita (in 1982 dollars); and
CPI is the Consumer Price Index (base year 1967).
This data illustrates some very interesting issues that were happening over that tumultuous period of our history. You will note that the pump price of gasoline more than doubled five-fold from the mid-1960s to the mid-1970s, and then doubled again in the early 1980s, due to the OPEC crises. The number of passenger cars climbed relentlessly with the love affair with ‘muscle cars’ despite the increasing pump price of gasoline, and indeed outpacing the increases in real disposable income per capita. The average MPG climbed only slowly as manufacturers increased the fuel efficiency of new cars and consumers slowly traded up to the more efficient cars new cars and retired their older vehicles. The changes in CPI show that the rate of inflation was generally much greater than the rate of increase of pump prices as the increased production and transportation costs due to rising fuel prices pervaded the entire economy, pushing up the prices of food and other household items that drive the CPI.
a. Reconcile the fact that while the quantity demanded of gasoline and pump prices both rise over this period generally, they are inversely related along a demand curve.
b. Conduct a multiple regression analysis to explain the quantity demanded of gasoline in terms of the other data provided. (Transpose this data into an Excel spread-sheet and use the Excel regression tool, if loaded, or alternatively download an ‘add-in’ regression program such as ‘Statpro’ to find the regression statistics).

Week 2 DQ1 Marginal Rate of Substitution.
What is the marginal rate of substitution (MRS) and why does it diminish as the consumer substitutes one product for another? Use examples to illustrate
Week 2 DQ2 Demand Elasticity.
Please, read the article Hainer, R. (2010), provided in the required readings section for this week. The tobacco industry is a prime example to consider when talking about price elasticity of demand. While nicotine use can be addictive for many users, it is not addictive for the so-called “social smokers”.
What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of “social smokers”? Can we say whose demand is likely to be more elastic? Why?

Week 3 Production Cost Analysis and Estimation Applied Problems.
Please, complete the following 3 applied problems in a Word or Excel document. Show all your calculations and explain your results. Submit your assignment in the drop box by using the Assignment Submission button.
1. Jennifer Trucking Company operates a large rig transportation business in Texas that transports locally grown vegetables to San Diego, California. The company owns 5 large rigs and hires local drivers paid fixed salaries monthly, regardless of the number of trips or tons of cargo that each driver transports each month. The below table presents details about the number of drivers and the total cargo transported by the company at different staff levels.
a. Which inputs are fixed and which are variable in the production function of Jennifer Trucking Company? Over what ranges do there appear to be increasing, constant and/or diminishing returns to the number of drivers employed?
b. What number of drivers appears to be most efficient in terms of output per driver?
c. What number of drivers appears to minimize the marginal cost of transportation assuming that all drivers are paid the same salary?
2. The Palms Dry Cleaning Shop in Fort Lauderdale, Florida, faces a highly seasonal demand for its services, as the snow-birds retirees flock to Florida in mid-fall to enjoy the mild winter weather and then return to their main homes in mid-spring. Given this seasonality, Palms tries to keep the overhead costs as low as possible and therefore, often uses seasonal contracted labor to man its operations. The following table shows the labor costs in each month of operation over the past 12 months as well as the total number of garments that were dry-cleaned in each month. Palms pays fixed wages per hour to each employee, and we can assume that the costs of other variable inputs (such as chemicals, electricity, etc) have remained constant.
a. Derive average variable cost (AVC) data from the data in this table.
b. Use gradient analysis to provide an estimate of eleven data points that seem to represent the MC curve over this range of outputs. Plot these data points and sketch in estimated MC and AVC curves that seem to best fit these data points.
c. Suppose that demand is estimated to move from its present (May) level of 3,500 units to 4,000 units next month (June). What is the incremental cost of meeting this demand?
d. Assuming that Palm’s price to dry clean a garment has been constant at $15 over the past year, and will remain at that level, what contribution to overheads and profit can it expect in June?
3. Over the past 12 months the Four Winds Novelty Company firm has recorded its internet sales (equals monthly output levels) and its monthly total variable costs (TVC) for a particular novelty item as shown in the following table. Sales have grown over this period with relatively few shocks due to uncontrollable weather, political and sporting events. This online retailer carries no inventories; when it receives a pre-paid on-line order from a customer, it simply buys the product from a supplier and ships it out to the customer.
a. Using regression analysis, find an equation that best fits the data to represent the TVC function.
b. At what sales/output level will marginal costs (MC) reach a minimum?
c. Estimate the value of TVC for sales/output level 250,000 units, and calculate the 95% confidence interval for your estimate
Week 3 DQ1 Relevant Costs.
Two partners own together a small landscaping business in North Carolina, called Summer Lawn Care. They have been specializing in summer grass seeding, installation, and maintenance. Recently, the partners acquired special technology and know-how for winter grass installations and maintenance. They also added a tree cutting service as recent storms in the area had caused demand for this service to soar. One of the partners insists that the name of the business should change to Lawn and Tree Care, so that it better reflects the range of services and, thus, generates more customer interest, and thus contracts.
Week 3 DQ2 Contribution Analysis.
Explain what is meant by “contribution analysis”. Carefully define the term and provide examples to illustrate it.

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