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How can the quality of a product serve as an entry barrier in a market?
Explain how each of the following events will affect the average and marginal cost
curves of a firm:
i) An increase in labor costs
ii) An increase in lease payments for a facility
iii) A decrease in the cost of utilities (electricity, water heat)
iv) Stricter environmental regulation requiring installation of scrubbers on smokestacks
Enpar manufactures engine parts for an automotive manufacturer. It operates two
plants, A and B, which have the following production functions: QA= 30SA'“ .25SA
2and
QB= 40SB'“ .5SB
2, where QAand QBdenote the outputs of engine parts from each plant
and SAand SBdenote the amounts of steel used in each plant. Suppose that total steel
availability is 40 units. What is the optimal allocation of steel between the two plants?
How are certainty equivalent and attitude toward risk related? Illustrate with an
example.
What is the concentration ratio? How is it used to measure oligopoly? What are its
drawbacks?
A lawyer is contemplating quitting her current job with a major corporation (where she
earns an annual salary of $110,000) to open her own law practice. She estimates that the
total cost of operating the office will be approximately $118,000 per year. The potential
revenue is estimated as $200,000 per year. Compute her accounting cost, accounting
profit, economic cost, and economic profit.
Alex is the manager of a division of a paper firm that produces copier paper and sells it
on the wholesale market. His firm's output represents about 1.5% of total copier paper
sales. The wholesale price of copier paper is $3.95 per standard package. The firm's
engineers report that, at projected volumes, labor costs are $1.00 per package, material
costs are $2.00 per package, and other average fixed costs are about $.75 per package.
What price should the firm charge for its copier paper?
A manufacturer of leather goods produces two models of briefcases '“ the Executive (E)
and the Student (S). Each unit of the E requires 1 square yard of leather, 2.5 hours of
labor, and 1 hour of machine time. The S requires .75 square yard of leather, 2 hours of
labor, and .5 hours of machine time. Each unit of E contributes $8 of profit while S
contributes $5. The manufacturer has 500 square yards of leather available per week,
400 labor hours, and 180 machine hours. Formulate as a linear programming problem.
The basic objective is to maximize profit.
