Bus 611 entire class all assignments

BUS 640 Entire Class /
Managerial Economics / New
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BUS 640 Entire Class / Managerial Economics / New

BUS 640 Week 1 DQ 1 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

BUS 640 Week 1 DQ 2 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?
How would you conclusion change for the winter months, if bad weather makes it likely
for traffic jams on the highway to increase to 6 days per month?
How would your conclusion change if Mathew purchased a new smart-phone app that
could show the status of the highway traffic prior to their drive each morning, thus
reducing the probability of them getting into a jam down to only 1day per month
(where on this day, the app showed no traffic jam, but a jam developed in the
meantime as they were driving along the highway).

BUS 640 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.
1. 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.
2. 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.
3. 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?
BUS 640 Week 2 DQ 1 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
BUS 640 Week 2 DQ 2 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?
BUS 640 Week 2 Consumer Demand Analysis and Estimation Applied Problems

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.
2. 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)
3. Which of the two options should she pick if she plans to quit her job and dedicate
to her studies?
4. 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.
5. 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
1. Calculate the price elasticity of demand for Einstein’s Bagels and explain what it
means.
2. Derive an expression for the (inverse) demand curve for Einsteins’s Bagels.
3. 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)?
4. Should Einstein Bagels spend more on advertising?
5. 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.
1. 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.
2. 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).
BUS 640 Week 3 DQ 1 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. The second partner wants to keep the old name and
argues, “We have already paid for business cards, vehicle paint, signage, and ads in
Yellow Pages”. Evaluate the arguments of the two partners. Explain and illustrate their
points by identifying the relevant and irrelevant costs for this decision.
BUS 640 Week 3 DQ 2 Contribution Analysis

Explain what is meant by “contribution analysis”. Carefully define the term and
provide examples to illustrate it.
BUS 640 Week 3 Production Cost Analysis and Estimation Applied Problems

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.
2. 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?
3. What number of drivers appears to be most efficient in terms of output per
driver?
4. What number of drivers appears to minimize the marginal cost of transportation
assuming that all drivers are paid the same salary?
5. 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.
6. Derive average variable cost (AVC) data from the data in this table.
7. 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.
8. 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?
9. 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?
10. 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.
11. Using regression analysis, find an equation that best fits the data to represent
the TVC function.
12. At what sales/output level will marginal costs (MC) reach a minimum?
13. Estimate the value of TVC for sales/output level 250,000 units, and calculate the
95% confidence interval for your estimate
BUS 640 Week 4 DQ 1 Strategic Behavior Oligopolies

Strategic Behavior Oligopolies. An interesting example of strategic behavior comes
from a 1997 article about Microsoft’s investment in Apple (New Straits Times, 1997).
The article is included in the Required Readings list. Facing tough anti-trust scrutiny
from government agencies, Microsoft provided financial support to Apple in order to
ensure Apple’s survival and, therefore, to ensure that competitiveness in the industry
remains. Moreover, the partnership with Apple provided an additional market for
Microsoft’s products – the MS Office and the IE products were to be bundled with the

MAC OS as one of the conditions for this financing. Discuss this case in the context of
market structure and strategic behavior. What market structure do these firms operate
in? Why did Microsoft need to preserve competitiveness in the industry? What was
Microsoft afraid of in the event that Apple did not survive?
BUS 640 Week 4 DQ 2 Local Market Power

Bulls Eye department store specializes in the sales of discounted clothing, shoes,
household items, etc. similar to the offerings at a regular Walmart or Target. Bulls Eye
is the only department store in Show Low and the nearest other discount retailer is
Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in
its local area. Despite having some market power, Bulls Eye is currently suffering
losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that
profitability can be improved. The manager is unsure of this strategy as recent data
points to increasing numbers of individuals shopping more and more. What are the pros
and cons of raising the prices at Bulls Eye and would that strategy be profitable?

BUS 640 Week 4 Market Structures and Pricing Decisions Applied Problems

A small business which produces plastic vacuum-suction covers for round household
dishes has a monopoly that is protected by a utility patent. The market demand curve
for this product is estimated to be: – 25P where Q is the number of plate covers per
year and P is in dollars. Cost estimation processes have determined that the firm’s cost
function is represented by + 2500Q -0.25*Q2.
(i) What is the profit-maximizing price and output level? Solve this algebraically for
equilibrium P and Q and also plot the MC, D and MR curves and illustrate the
equilibrium point.
(ii) What profit do you expect that the firm will make in the first year?
(iii) Do you expect this profit level to continue in subsequent years? Why or why not?

2. Greener Grass Company (GGC) competes with its main rival, Better Lawns and
Gardens (BLG), in the supply and installation of in-ground lawn watering systems in
the wealthy western suburbs of a major east-coast city. Last year, GGC’s price for
the typical lawn system was $1,995 compared with BLG’s price of $2,100. GGC
installed 9,130 systems, or about 55% of total sales and BLG installed the rest. (No
doubt many additional systems were installed by do-it-yourself homeowners since
the parts are readily available at hardware stores.)
GGC has substantial excess capacity—it could easily install 25,000 systems annually, as
it has all the necessary equipment and can easily hire and train installers. Accordingly,
GGC is considering expansion into the eastern suburbs, where the homeowners are less
wealthy. In past years, both GGC and BLG have installed several hundred systems in
the eastern suburbs but generally their sales efforts are met with the response that the
systems are too expensive. GGC has hired you to recommend a pricing strategy for
both the western and east¬ern suburb markets for this coming season. You have
estimated two distinct demand functions, as follows:
Qw =1,035.548 – 6.07164Pgw + 2.83Pbw + 2,100Ag – 1,500Ab + 0.2348Yw
for the western market and
Qe = 49,714.29 – 30.7692Pge + 6.984Pbe + 1,180Ag – 950Ab + 0.0825Ye
for the eastern market, where Q refers to the number of units sold; P refers to price
level; A refers to advertising budgets of the firms (in millions); Y refers to average
disposable income levels of the potential customers; the subscripts w and e refer to the
western and eastern markets, respectively; and the subscripts g and b refer to GGC
and BLG, respectively. GGC expects to spend $1.5 million on advertising this coming
year and expects BLG to spend $1.2 million on advertising. The average household
disposable income is $55,000 in the western suburbs and $25,000 in the eastern
suburbs. GGC does not expect BLG to change its price from last year, since it has
already distributed its glossy brochures (with the $2,100 price stated) in both suburbs,
and its TV commercial has already been produced. GGC’s cost structure has been
estimated as TVC 5 755.363Q 1 0.005Q2 where Q represents single lawn watering
systems.
1. Derive the demand curves for GGC’s product in each market.
2. Plot graphically the demand and MR curves for each market, and also show
GGC’s combined marginal revenue curve (MR) and its MC curve. Show graphically
the quantities that should be produced and sold, and the prices that should be
charged, in each market.
3. Confirm your quantity and price results algebraically.

4. Calculate the price elasticities of demand in each market and discuss these in
relation to the prices to be charged in each market.
5. Add a short note to GGC management outlining any reservations and
qualifications you may have concerning your price recommendations.
BUS 640 Week 4 Journal Economics in News
BUS 640 Week 5 DQ 1 Good Will in Price Bidding

. Sometimes, a bidder on a work contract may bid lower than what would maximize
his/her profit from the contract and the reason for that is to create goodwill (to increase
expected future business from the buyer). How would you value the goodwill that is
obtained in this way?
BUS 640 Week 5 DQ 2 New Product Introduction

Bayer Schering Pharma AG, Germany owns the Alka-Seltzer, which was launched in
1931 and was meant for relief of minor aches, pains, inflammation, fever, headache,
heartburn, sour stomach, indigestion, and hangovers. The Alka-Seltzer Plus was a spin-
off of the original medicine, meant to relieve colds and flu.
The company has recently introduced a new and improved Alka-Seltzer Plus, as
described in the TV ad: “The Cold Truth”, (please, watch the ad listed in the Required
Readings)
The ad shows that Alka-Seltzer Plus fights cough, body aches, runny nose, sneezing
and fever, just like Vicks NyQuil does, but it also now can fight congestion, unlike
NyQuil.
Explain how the new Alka-Seltzer Plus has been quality- and price-positioned in an
existing market. In your opinion, has Bayer positioned their product appropriately in the
market for cold and flu symptoms relief products? Would you advise Bayer to use a
skimming or a penetration pricing strategy? Explain your reasoning.
How do you think Proctor and Gamble, the company who produces Vicks NyQuil,would
respond to the ad?
BUS 640 Week 5 Price Quotes and Pricing Decisions Applied Problems

Maxim Motronics A.G. have been marketing a new product in Europe that has achieved
notable market success and it now plans to introduce this product into the United
States market. The product is an electronic device that is mounted in the rear window
of passenger cars and allows the driver of one vehicle to have a spoken message
converted to text and scrolled across the display panel to be read by occupants of a
following vehicle. This new product can utilize the hands-free telephone microphone
already installed in many new vehicles, or provides this as free accessory. Maxim
expects that demand will be slow at first but will pick up quickly as automobile
accessory stores begin to stock the product and as word-of-mouth promotion spreads
awareness. Maxim also plans to produce a humorous video for posting to YouTube and
to utilize social-media marketing to spread awareness and enthusiasm for the new
product. Market demand estimates provided by Maxim are that the firm expects to sell
about 125,000 units into the U.S. market within 24 months, and that sales per month
will start slowly and increase monthly in the expected diffusion pattern until they
stabilize at about 10,000 per month after month 24. The diffusion curve parameters
that fit these assumptions are shown in the equation + 46.11T2 – 1.352T3, where Q is
sales per month and T is the number of months after the launch into the US market.
Maxim’s average variable cost (AVC) is constant at $62 per unit and he expects to set
the profit-maximizing price by applying a 167% mark-up to arrive at his regular price of
$165, since he estimates the demand curve to be – 0.02Q.
1. What introductory price do you recommend Maxim sets for the launch of the
product into the US market, and why? (State any assumptions you need to make).
2. How might he further adjust the price before raising it to the regular level he
envisions? (Again, state any assumptions you need to make.)
3. What is your advice for Maxim concerning the confirmation of his prior
projections of demand and the shape of the diffusion curve, and the profit-
maximizing price, after this new product gains some months of experience in the
U.S. market?
4. Your company, Bright Paints, is one of a dozen companies manufacturing a
special reflective paint used for traffic signs. The State Department of
Transportation has called for tenders to supply 10,000 gallons of blue reflective
paint to be delivered within two months. You can foresee fitting in a production run
of the blue paint and have decided to bid on the job. You calculate your incremental
costs for this job to be $76,200. This particular contract is standard, similar in all in
respects to hundreds of contracts you have bid on over the past few years. Your
pricing policy has been to apply a mark-up to incremental costs to arrive at the bid

price. Your mark-up has been higher when you had plenty of orders and lower when
you had few or no orders to fulfill. You have assembled data relating the mark-up
rate used and the percentage of contracts won at each mark-up rate, as follows.
5. Why would your company have bid with a zero mark-up on some past tenders?
Why didn’t it win all of those contracts?
6. What is the bid price that maximizes the expected contribution of the contract?
7. Why, or why not, is the fixed-price mode of bidding likely to be the best one to
use for this contract?
8. In calculating the incremental cost of a particular project, how would you treat
the possible future costs of a lawsuit that may occur as a result of this project,
where the cost of the lawsuit might range from $10,000 to $500,000 with an
associated probability distribution?

BUS 640 Week 6 DQ 1 Game Theory and Strategic Behavior

Suppose that GE is trying to prevent Maytag from entering the market for high
efficiency clothes dryers. Even though high efficiency dryers are more costly to
produce, they are also more profitable as they command sufficiently higher prices from
consumers. The following payoffs table shows the annual profits for GE and Maytag for
the advertising spending and entry decisions that they are facing.
Based on this information, can GE successfully prevent Maytag from entering this
market by increasing its advertising levels? What is the equilibrium outcome in this
game?
Suppose that an analyst at GE is convinced that just a little bit more advertising by GE,
say another $2m, would be sufficient to deter enough customers from buying Maytag,
thus, yield less than $0 profits for Maytag in the event it enters. Suppose that spending
an extra $2m on advertising by GE will reduce its expected profits by $1.5 m,
regardless of whether Maytag enters or stays out. Would this additional spending on
advertising achieve the effect of deterring Maytag from entering? Should GE pursue this
option?
BUS 640 Week 6 DQ 2 Sustainable Competitive Advantage

Describe the circumstances under which a firm chooses a low-cost strategy to attain
sustainable competitive advantage. What about the situations when a differentiation
strategy is chosen? Provide specific real world examples.

BUS 640 Week 6 Final Paper Managerial Decision Making

Focus of the Final Paper
Research a specific company of your choice and identify some of the managerial
decisions that were made over time and in response to changes in its market or
competitive environment. Use the Ashford University Online Library and web-based
sources for your research. At least three external scholarly sources must be used.
Address all of the following areas:
Describe the company and provide a brief history of its operations. Find or use graphs
to illustrate its financial performance over the years.
Identify any sources of risk or uncertainty in its operations. Do the financial reports
indicate risky or uncertain activities or changes to the economic environment that
ultimately appear to have affected the company’s financial outcomes? Be specific.
Are there any government regulations that have affected this company’s operations
domestically or abroad? Explain.
Describe the inputs that are used in this company’s production function and identify any
challenges to securing these inputs.
Determine if the company has introduced new products in existing markets or created
new markets over time. What is the impact on its finances?
Determine if the price of its products increased or declined over time and analyze the
reasons for price fluctuations. Study the demand elasticity for its products and discuss
the availability of close substitutes for its products. How does that affect pricing
decisions?
Analyze the company’s profitability. Identify the economy or industry influences on its
costs, operations, and profitability.
Describe the competitive environment in which the firm operates, the distribution of
market power, and the strategic behavior of the firm and its competitors. Apply your
knowledge of the theory of this company’s market structure. How does the company
make pricing and production decisions? Is your observation supported by the
theoretical models? Refer to the financial reports for illustration.

Identify any non-price competitive strategies that the company might be engaging in?
Provide specific examples.
Evaluate if the company made any mistakes in its decisions over time, and recommend
any changes or improvements for the future operations. Refer to the financial reports
when making specific observations or recommendations.
Use economic language and demonstrate your understanding of the concepts and
theories of this course.

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