Congress enacted the Health Insurance Portability and Accountability Act (HIPAA) to potentially help millions of employees gain access to group health insurance. The key provision of HIPAA requires insurance companies and health insurance plans administered by employers who self-insure to provide all employees access to health insurance regardless of previous medical conditions. This provision is known as “guaranteed issue” and is a controversial topic in the insurance industry. Explain why this is controversial legislation.
> You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose t
> You are the manager of a midsized company that assembles personal computers. You purchase most components—such as random access memory (RAM)—in a competitive market. Based on your marketing research, consumers earning over $80,000 purchase 1.5 times more
> Consider a market where supply and demand are given by Qx s = −14 + Px and Qx d = 85 − 2Px. Suppose the government imposes a price floor of $38 and agrees to purchase and discard any and all units consumers do not buy at the floor price of $38 per unit.
> The supply curve for product X is given by Qx s = −380 + 20Px. a. Find the inverse supply curve. b. How much surplus do producers receive when Qx = 460? When Qx = 1,100?
> Use the accompanying graph to answer these questions. a. Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price? b. Suppose demand is D and supply is S0. If a price support of $1
> Suppose demand and supply are given by: a. Determine the equilibrium price and quantity. Show the equilibrium graphically. b. Suppose a $12 excise tax is imposed on the good. Determine the new equilibrium price and quantity. c. How much tax revenue does
> Forey Inc. competes against many other firms in a highly competitive industry. Over the last decade, several firms have entered this industry and, as a consequence, Forey is earning a return on investment that roughly equals the interest rate. Furthermor
> Suppose demand and supply are given by Qd = 60 − P and Qs = P − 20. a. What are the equilibrium quantity and price in this market? b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $50 is impo
> The demand curve for product X is given by Qx d = 500 − 4Px. (LO2) a. Find the inverse demand curve. b. How much consumer surplus do consumers receive when Px = $50? c. How much consumer surplus do consumers receive when Px = $35? d. In general, what hap
> Suppose that the total benefit and total cost from a continuous activity are, respectively, given by the following equations: B(Q) = 100 + 36Q − 4Q2 and C(Q) = 80 + 12Q. [Note: MB(Q) = 36 − 8Q and MC(Q) = 12.] (LO1, LO6, LO7) a. Write out the equation fo
> What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8 percent?
> Southwest Airlines begins a “Bags Fly Free” campaign, charging no fees for the first and second checked bags. Does this situation best represent producer–producer rivalry, consumer rivalry, or consumer–producer rivalry? Explain.
> As the manager of a focus group company, you are interested in optimizing the number of participants you include in focus groups for your clients. Over the past year, you ran a field experiment, varying the number of participants you provided for each fo
> Analysts at a digital marketing firm collected data on the firm’s extent of website analysis (X), along with the cost per customer (C), and the ad revenue per customer (R). Using regression analysis, the analysts produced the following
> Last year, MedSupplies—a national supplier of medical devices—posted its first loss in six years. The loss was a surprise to investors because the industry as a whole has been growing. Analysts have reached a consensus
> Two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6,000 per month; under the new plan, she receives 2 percent of
> You are the manager of Local Electronics Shop (LES), a small brick-and-mortar retail camera and electronics store. One of your employees proposed a new online strategy whereby LES lists its products at Pricesearch.com—a price comparison website that allo
> You work at a firm on Wall Street that specializes in mergers, and you are the team leader in charge of getting approval for a merger between two major beer manufacturers in the United States. While Table 7–2 in the text indicates that the four-firm conc
> Recently, European Union (EU) governments approved a five-year EU trade protection against grain-oriented electrical steel (GOES) from Russia, Japan, China, South Korea, and the United States. The protection would consist of minimum import prices on ship
> According to The Wall Street Journal, merger and acquisition activity in the first quarter rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred between information technologies (IT) companies. The largest IT transactio
> You are the manager in charge of global operations at Bank Global—a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new advertising campaign in the U.S. market. Y
> Suppose one of your clients is four years away from retirement and has only $2,500 in pretax income to devote to either a Roth or traditional IRA. The traditional IRA permits investors to contribute the full $2,500 since contributions to these accounts a
> The head of the accounting department at a major software manufacturer has asked you to put together a pro forma statement of the company’s value under several possible growth scenarios and the assumption that the company’s many divisions will remain a s
> As a marketing manager for one of the world’s largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared the accompanying table, which summarize
> Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech co
> Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smart phones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With
> You are the human resources manager for a famous retailer and are trying to convince the president of the company to change the structure of employee compensation. Currently, the company’s retail sales staff is paid a flat hourly wage of $20 per hour for
> You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy-efficient model sells for $1,600 and will save you $40 in electricity costs at the end of each of the next five years.
> The four-firm concentration ratios for industries X and Y are 81 percent and 74 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 3,100 and 1,600. The Dansby-Willig performance index for industry X is 0.7, while that for ind
> You have recently learned that the company where you work is being sold for $500,000. The company’s income statement indicates current profits of $25,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” inde
> An owner can lease her building for $150,000 per year for three years. The explicit cost of maintaining the building is $50,000, and the implicit cost is $65,000. All revenues are received, and costs borne, at the end of each year. If the interest rate i
> Suppose the total benefit derived from a continuous decision, Q, is B(Q) = 20Q − 2Q2 and the corresponding total cost is C(Q) = 4 + 2Q2, so that MB(Q) = 20 − 4Q and MC(Q) = 4Q. a. What is total benefit when Q = 2? Q = 10? b. What is marginal benefit when
> Jaynet spends $30,000 per year on painting supplies and storage space. She recently Received two job offers from a famous marketing firm—one offer was for $110,000 per year and the other was for $80,000. However, she turned both jobs down to continue a p
> It is estimated that over 100,000 students will apply to the top 30 MBA programs in the United States this year. a. Using the concept of net present value and opportunity cost, explain when it is rational for an individual to pursue an MBA degree. b. Wha
> Complete the accompanying table and answer the accompanying questions. a. At what level of the control variable are net benefits maximized? b. What is the relation between marginal benefit and marginal cost at this level of the variable?
> What is the value of a preferred stock that pays a perpetual dividend of $120 at the end of each year when the interest rate is 3 percent?
> A firm’s current profits are $900,000. These profits are expected to grow indefinitely at a constant annual rate of 2 percent. If the firm’s opportunity cost of funds is 4 percent, determine the value of the firm: (LO5, LO7) a. The instant before it pays
> Your store sells an item desired by a consumer. The consumer is using an optimal search strategy; the accompanying graph shows the consumer’s expected benefits and costs of searching for a lower price. a. What is the consumerâ
> For each of the following scenarios, determine whether the decision maker is risk neutral, risk averse, or risk loving. a. A manager prefers a 20 percent chance of receiving $1,400 and an 80 percent chance of receiving $500 to receiving $680 for sure. b.
> Based on the information given, indicate whether the following industry is best characterized by the model of perfect competition, monopoly, monopolistic competition, or oligopoly. a. Industry A has a four-firm concentration ratio of 0.005 percent and a
> Consider the two options in the following table, both of which have random outcomes: a. Determine the expected value of each option. b. Determine the variance and standard deviation of each option. c. Which option is most risky?
> Prosecutors representing the Securities and Exchange Commission recently announced criminal charges against 13 individuals for engaging in insider trading. According to the SEC’s director of enforcement, a trading ring acting on inside information “compr
> Online MBA programs significantly reduce the cost to existing managers of obtaining an MBA, as they permit students to maintain their existing residence and employment while working toward an advanced degree in business. Based on your knowledge of the ec
> You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald’s or a Penn Station East Coast Subs franchise. McDonald’s indicates that, based on the location where you are proposing to open a new r
> Recently the pharmaceutical company Mylan attempted a hostile takeover of generic drugmaker Perrigo. Perrigo reported a net loss the year before the attempted takeover, which was partially driven by a spike in administrative expenses. Suppose that Mylan
> CPT Inc. is a local manufacturer of conveyor systems. Last year, CPT sold over $2 million worth of conveyor systems that netted the company $100,000 in profits. Raw materials and labor are CPT’s biggest expenses. Spending on structural steel alone amount
> Pelican Point Financial Group’s clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $2.5 million. These investors seek unlimited access to investment consultants and
> This past year, Used Imported Autos sold very few cars and lost over $500,000. As a consequence, its manager is contemplating two strategies to increase its sales volume. The low cost strategy involves changing the dealership name to Quality Used Importe
> From the late 1990s through the early 2000s, more than 25 domestic steel companies filed for bankruptcy. A combination of low prices with strong competition by foreign competitors and so-called legacy costs of unions are cited as the primary reasons why
> Consider a firm that operates in a market that competes aggressively in prices. Due to the high fixed cost of obtaining the technology associated with entering this market, only a limited number of other firms exist. Furthermore, over 70 percent of the p
> BK Books is an online book retailer that also has 10,000 “bricks-and-mortar” outlets worldwide. You are a risk-neutral manager within the Corporate Finance Division and are in dire need of a new financial analyst. You only interview students from the top
> Life insurance companies require applicants to submit to a physical examination as proof of insurability prior to issuing standard life insurance policies. In contrast, credit card companies offer their customers a type of insurance called “credit life i
> As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes before you learn how strong demand is for homes in this la
> The FCC has hired you as a consultant to design an auction to sell wireless spectrum rights. The FCC indicates that its goal of using auctions to sell these spectrum rights is to generate revenue. Since most bidders are large telecommunications companies
> Life insurance policies typically have clauses stipulating the insurance company will not pay claims arising from suicide for a specified term—typically two years from the date the policy was issued. Use precise economic terminology to explain the likely
> An advertisement in the local paper offers a “fully loaded” car that is only six months old and has only been driven 5,000 miles at a price that is 20 percent lower than the average selling price of a brand new car with the same options. Use precise econ
> The text points out that asymmetric information can have deleterious effects on market outcomes. a. Explain how asymmetric information about a hidden action or a hidden characteristic can lead to moral hazard or adverse selection. b. Discuss a few tactic
> You are one of five risk-neutral bidders participating in an independent private values auction. Each bidder perceives that all other bidders’ valuations for the item are evenly distributed between $30,000 and $70,000. For each of the following auction t
> You are a bidder in an independent private values auction, and you value the object at $3,000. Each bidder perceives that valuations are uniformly distributed between $1,500 and $9,000. Determine your optimal bidding strategy in a first-price, sealed-bid
> A risk-neutral consumer is deciding whether to purchase a homogeneous product from one of two firms. One firm produces an unreliable product and the other a reliable product. At the time of the sale, the consumer is unable to distinguish between the two
> Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if approved, the post merger HHI would increase by 1,800. How was
> You are the manager of a firm that sells a “commodity” in a market that resembles perfect competition, perfect competition, and your analytics team estimates that your cost function is C(Q) = 2Q + 3Q2. Unfortunately, due to production lags, you must make
> You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −3, while group 2’s is −5. Your marginal cost of producing t
> You are the manager of a firm that charges customers $16 per unit for the first unit purchased and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs. a. What is the ec
> Based on the following graph (which summarizes the demand, marginal revenue, and relevant costs for your product), determine your firm’s optimal price, output, and the resulting profits for each of the following scenarios: a. You charge
> Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is –3. The marginal cost of producing the product is constant at $100, while average total cost at current production levels is $175. Determine you
> As an online video commentator, you are committed to offering your videos without ads. Until now, you’ve experimented with different per-video prices for your content and collected user level data on the number of videos viewed in a week at different pri
> Your company just became international, by offering its products in both the United States and Canada. Experts in your analytics department believe that tastes for your product differ in those two countries and have carefully collected data on prices and
> You manage a company that competes in an industry that is comprised of four equalsized firms that produce similar products. A recent industry report indicates that the market is fairly saturated in that a 10 percent industrywide price increase would lead
> An analyst for Food Max estimates that the demand for its Brand X potato chips is given by ln Q Xd = 12.14 – 2.8ln PX + 3.4PY + 0.7ln AX, where QX and PX are the respective quantity and price of a four-ounce bag of Brand X potato chips, PY is the price o
> Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor. Based on some economists’ definition of the relevant market, the two firms proposing to merge enjoyed a combined market sha
> Under what conditions might the Justice Department approve a merger between two companies that operate in an industry with a premerger Herfindahl-Hirschman index of 2,900 if the post merger index is expected to increase by 225?
> Heathrow Airport Holdings is a private company that operates Heathrow Airport in London. Suppose the company recently commissioned your consulting team to prepare a report on traffic congestion at Heathrow. Your report indicates that Heathrow is more lik
> Many home improvement retailers like Home Depot and Lowe’s have low-price guarantee policies. At a minimum, these guarantees promise to match a rival’s price, and some promise to beat the lowest advertised price by a given percentage. Do these types of p
> As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie t
> Blue Skies Aviation is a manufacturer of small single-engine airplanes. The company is relatively small and prides itself on being the only manufacturer of customized airplanes. The company’s high standard of quality is attributed to its refusal to purch
> You own a franchise of rental car agencies in Florida. You recently read a report indicating that about 80 percent of all tourists visit Florida during the winter months in any given year and that 60 percent of all tourists traveling to Florida by air re
> The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent cer
> According to International Data Corporation (IDC), the number of worldwide smart phone owners will soon exceed 3 billion. That number is expected to grow at nearly 10 percent per year for the next five years. While the actual cost of a smart phone is abo
> You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $25,000 (your wholesale supplier would not let you purchase the skis and bindings separately, nor would it let yo
> You are a pricing analyst for QuantCrunch Corporation, a company that recently spent $15,000 to develop a statistical software package. To date, you only have one client. A recent internal study revealed that this client’s demand for your software is Q d
> You are the owner of a local Honda dealership. Unlike other dealerships in the area, you take pride in your “no-haggle” sales policy. Last year, your dealership earned record profits of $1.3 million. In your market, you compete against two other dealers,
> Evaluate the following statement: “Managers should specialize by acquiring only the tools needed to operate in a particular market structure. That is, managers should specialize in managing either a perfectly competitive, monopoly, monopolistically compe
> Does the presence of online auction sites, such as eBay, make it easier or harder for traditional retailers and wholesalers to engage in profitable price discrimination? Explain.
> According to some translations, Nobel Laureate Albert Einstein once said, “God does not play dice with the universe.” Does this mean that a profit-maximizing firm would never use something like dice or a roulette wheel to help shape its pricing decisions
> A large firm has two divisions: an upstream division that is a monopoly supplier of an input whose only market is the downstream division that produces the final output. To produce one unit of the final output, the downstream division requires one unit o
> You are the manager of a firm that produces products X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these consumers individually at the time of the sale. In particular,
> A monopoly is considering selling several units of a homogeneous product as a single package. Analysts at your firm have determined that a typical consumer’s demand for the product is Qd = 80 − 0.5P, and the marginal cost of production is $100. a. Deter
> You are the manager of a monopoly. Your analytics department estimates that a typical consumer’s inverse demand function for your firm’s product is P = 200 − 20Q, and your cost function is C(Q) = 80Q. a. Determine the optimal two-part pricing strategy. b
> Use the following normal-form game to answer the following questions. a. For what values of x is strategy D (strictly) dominant for player 2? b. For what values of x is strategy B (strictly) dominant for player 1? c. For what values of x is (B, D) the on
> Use the following normal-form game to answer the following questions. a. Identify the one-shot Nash equilibrium. b. Suppose the players know this game will be repeated exactly three times. Can they achieve payoffs that are better than the one-shot Nash e
> Use the following payoff matrix for a simultaneous-move one-shot game to answer the accompanying questions. a. What is player 1’s optimal strategy? Why? b. Determine player 1’s equilibrium payoff.
> In a two-player, one-shot, simultaneous-move game, each player can choose strategy A or strategy B. If both players choose strategy A, each earns a payoff of $400. If both players choose strategy B, each earns a payoff of $200. If player 1 chooses strate
> A firm has $1.6 million in sales, a Lerner index of 0.55, and a marginal cost of $45, and competes against 1000 other firms in its relevant market. a. What price does this firm charge its customers? b. By what factor does this firm mark up its price over
> China’s entry into the World Trade Organization (WTO) in 2001 created more competition between local and foreign firms, and also provided China greater access to the market for exports. This was particularly true in the market for rubber since, at the ti
> Discuss the similarities and differences between entrepreneurial businesses and large businesses.
> What is a business incubator? How do they assist entrepreneurs with new business startups?
> Suppose you are a new entrepreneur and you hired several family members to fill key positions vacant at your new business. Discuss the ethical issues that might arise between the employees that are relatives and the other employees that work at your new
> Consider the reasons why potential entrepreneurs decide to pursue entrepreneurship. Compare and contrast personal motivations with circumstance motivations. Discuss what motivates you to consider entrepreneurship.
> Define a stakeholder and discuss the individuals and groups that qualify as stakeholders.
