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## This exam gives the student some choice in answering questions

Midterm Examination, F2 2015Business 6120.QCPage 1 of 5Midterm Examination, Fall 2 –2015INSTRUCTIONS:This exam gives the student some choice in answering questions. In total, you will answer 10of the 14 questions using the following instructions:Use the checklist to ensure you have answered the correct number of questions in total (10):CHECKLIST:QUESTIONAnswer question 1Answer question 2 or question 3Answer question 4 or question 5Answer question 6Answer question 7Answer question 8 or question 9Answer question 10 or question 11Answer question 12Answer question 13Answer question 14POINTS10101010101010101010Page – 21. Critically evaluate the following: In your planning meetings the advertising executivesays: "Unit sales went up last year by 15% when we increased advertising expendituresby 5%. Clearly, advertising is very effective. Our advertising budget should be funded atan even larger amount this year." (Hint: Be sure to address whether the executiveâsstatement is unambiguously reliable.)2. Ariel has been told that she will be in line for the following bonuses over the course of thenext 5 years if she attains her sales quotas each period:a.b.c.d.e.Year 1 – \$10,000Year 2 – \$15,000Year 3 – \$20,000Year 4 – \$30,000Year 5 – \$50,000With this data, calculate the Present Value of these future bonus payments, assumingshe achieves the targets.3.A firm with a 2 input production process measures the marginal output with respect toone input at 12 while the price of that input is \$3.00. Knowing that the price of thesecond input is \$4.00, what should the firm do to optimize production (assume thatthe MPPâs are independent for the sake of this discussion). Why?4.Barb listens only to Broadway Musicals or Dead Kennedys. She buys 14 BroadwayMusical downloads and 20 downloads by Dead Kennedys per month, but would forgodownloads by Dead Kennedys for the Broadway Musical downloads at the rate of 2.0-to1 whenever she has more Dead Kennedys units than Broadway Musical units. Shewould forego only 1.0 of a unit by Dead Kennedys per Broadway Musical when theopposite is true, however.If you took away 12 Dead Kennedys downloads, how many Broadway Musicaldownloads would she need in total to remain at the same satisfaction level? Be sure toshow your work.5.Frankie and Joseâ both shop at the same store and face the same prices but come awaywith very different commodity bundles. Last week Frankie bought \$10 worth of fruit and\$5 worth of candy while Jose purchased \$5 worth of fruit and \$30 worth of candy. Eventhough their bundles differ markedly, what trait do they share with regard to the MRSbetween candy and fruit?6.Describe the effect of each of the following events on either the demand or supply ofiPhones in the USA. Further indicate the likely direction in the total amount of iPhonesexchanged AND the change in expected market price (both) when:a.b.c.d.domestic incomes decrease.the price of wireless network usage rises.the price of landline phones and usage falls.the price of Android apps declines.Page – 37.A professional duct cleaning firm estimates that each additional room it cleans costs thefirm \$22. The owner estimated the firmâs demand could be described by the equationbelow. She also estimated the marginal revenue equation from the demand equation.Estimated demand equation:a.b.c.Q = 40,000 â 1,000PCalculate the optimum output level. (show your work)In order to sell the amount computed in part (a) above; at what price would thecompany have to offer its service?If fixed costs are \$57,500, what is this firmâs total profit at the optimum price/outputcombination?8.A certain industry with five firms is under scrutiny due to an impending merger. Firm 1has 30% of the market while firm 2 and 3 has 25%. The remaining firms have 10% each.What is the Herfindahl-Hirschman index for the industry? Based on DOJ guidelines, doyou think it is likely that the Justice Department would block a merger between firms 3and 4? What other aspects of the marketplace might the department consider as itevaluates the shares?9.True or false? A sunk cost is always a fixed cost, but a fixed cost is not necessarily asunk cost. Explain your response being sure to define your terms.10.L123456Q100021002900355039754300If the firm uses 10 units of Kand the price of K = \$500 per unitLet: the price of good = \$100wage per worker = \$50,000a. Does this represent the SR or LR? Explain.b. What is the optimal number of workers this firm will hire?c. What are profits at this number of workers?11.A bicycle manufacturer with an output of 25,000 high-quality bikes per month requires50,000 tires on the last Thursday of the month to meet their efficiency standards.a. If the firm wants to continue specializing in what it does best, namely, makingbicycles, what two means of obtaining the tires exists to the firm?b. Which one would you prefer and why? (be sure to adopt and make yourassumptions explicit)Page – 412.The following production table provides estimates of the maximum amounts of outputpossible with different combinations of two input factors, X and Y. (Assume these are justillustrative points on a spectrum of continuous input combinations.)Unitsof X54321Estimated Output per Day184 265 334 395 440176 248 303 352 395164 216 264 303 334128 176 216 248 26588128 164 176 18412345Units of Ya.List the different combinations of inputs X and Y that, if graphed, would illustratean isoquant for an output of 176.b.Assuming that output sells for \$4 per unit and X is fixed at 5 units, complete thefollowing table:Units of Yemployed12345Total ProductOf Y184Marginal Productof Y184Value MarginalProduct of Y69244440c.d.13.Assuming the cost of Y is \$250 per unit, how many units of Y should optimally beemployed? Explain how you reached your answer.Suppose that the cost of units of both input X and input Y are the same at \$250per day. Describe how isocost curves for a cost of \$250 and also for a cost of\$275 would look in terms of position and slope.In the 1900s, five firms supplied amateur color film in the United States: Kodak, Fuji,Konica, Agfa, and 3M. From a technical viewpoint, there was little difference in the qualityof color film produced by these firms, yet Kodakâs market share was 70 percent. The ownprice elasticity of demand for Kodak film was -2.0 and the market elasticity of demandwas -1.25. Suppose that in the 1900s, the average retail price of a roll of Kodak film was\$7.00 and that Kodakâs marginal cost was \$3.00 per roll. Based on this information,discuss industry concentration, demand and market conditions, and the pricing behaviorof Kodak in the 1990s. From a managerial economics point of view, do you think theindustry environment is significantly different today? Explain.Page – 514. The demand for Cable TV subscription channels is estimated and presented below.1. Complete the table and write the demand equation in proper form.2. Objectively evaluate whether this equation is reliable?3. Is price important to demand? Why or why not?4. Suppose that the mean price for added cable channels is \$19 and the averagequantity per market is 122 (the model is in thousands). Calculate the price elasticityof demand at the mean.5. Is demand inelastic, unitarily elastic or inelastic? All other things being equal andwithout regard to costs, what should the cable provider do with regard to pricing toenhance income?R2sn100ANOVAdfSSMSRegressionSign F5.29E-11Residual973,535,019Total36,4435,758,037CoefficientInterceptPrice-4.32Std Err187.15IncomeFt-Stat0.350.690.02p-value0.727097520.000000014.470.00002122

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