(solution) Hi tutor, Can you please help with my home work. For each

(solution) Hi tutor, Can you please help with my home work. For each

Hi tutor, Can you please help with my home work. For each question, please show the necessary derivation (if applicable) and highlight the answer. Please use your own words in excel. Thanks.

Dr. C. Chen ECON 3305 Managerial Economics
Homework 1
The homework covers Ch 1~3. It has to be your individual work. Copying answer from
others will violate ACADEMIC HONESTY policy to cause a failing grade. For each
question, please show the necessary derivation (if applicable) and highlight the answer.
Limit your answers within 5 pages. No cover sheet is required.
Q1: Ch 1 (15%)
At the beginning of the year, an audio engineer quit his job and gave up a salary of $
175,000 per year in order to start his own business, Sound Devices, Inc. The new
company builds, installs, and maintains custom audio equipment for businesses that
require high- quality audio systems. A partial income statement for Sound Devices, Inc.,
is shown below:
2015
Revenues
Revenue from sales of product and services . . . . . . . . . . . . . . . . . $ 970,000
Operating costs and expenses
Cost of products and services sold . . . . . . . . . . . . . . . . . . . . . . . 355,000
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,000
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Total operating costs and expenses . . . . . . . . . . . . . . . . . . . . . $ 555,000
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 415,000
Interest expense (bank loan) . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 45,000
Legal expenses to start business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 177,000
To get started, the owner of Sound Devices spent $ 100,000 of his personal savings to
pay for some of the capital equipment used in the business. In 2015, the owner of Sound
Devices could have earned a 15 percent return by investing in stocks of other new
businesses with risk levels similar to the risk level at Sound Devices.
a. What are the total explicit, total implicit, and total economic costs in 2015?
b. What is accounting profit in 2015? What is economic profit in 2015?
c. Given your answer in part b, evaluate the owner?s decision to leave his job to start
Sound Devices. Q2: Ch 1 (10%)
An article in The Wall Street Journal reported that large hotel chains, such as Marriott,
are tending to reduce the number of hotels that they franchise to outside owners and
increase the number the chain owns and manages itself. Some chains are requiring private
owners or franchisees to make upgrades in their hotels, but they are having a difficult Dr. C. Chen time enforcing the policy. Marriott says this upgrading is important because ?we?ve built
our name on quality.?
a. What type of agency problem is involved here?
b. Why would a chain such as Marriott tend to own its hotels in resort areas, such as
national parks, where there is little repeat business, and franchise hotels in down-town
areas, where there is a lot of repeat business? Think of the reputation effect and the
incentive of franchises to maintain quality. Q3: Ch 2 (25%)
Suppose you are the manager of a California winery. How would you expect the
following events to affect the market equilibrium price (up or down) you receive for a
bottle of wine? Please state the shift (leftward or rightward) of demand or supply.
a. The price of comparable French wines increases.
b. One hundred existing wineries close in California.
c. The price of a glass bottle increases significantly due to new government anti-shatter
regulations.
d. Researchers discover a new wine- making technology that reduces production costs.
e. The average age of consumers decreases, and younger people drink more wine. Q4: Ch 2 (10%)
Evaluate the following statements using graphical analysis. Provide a brief narrative
explanation of your graph to support your evaluation. Make sure the axes and curves in
your graphs are properly labeled.
a. True or false, ?When demand for home heating oil increases, a shortage of heating oil
will occur.?
b. True or false, ?A decrease in the supply of random access memory (RAM) chips for
personal computers causes a shortage of RAM chips.? Q5: Ch 3 (10%)
Appalachian Coal Mining believes that it can increase labor productivity and, therefore,
net revenue by reducing air pollution in its mines. It estimates that the marginal cost
function for reducing pollution by installing additional capital equipment is
MC= 70P,
where P represents a reduction of one unit of pollution in the mines. It also feels that for
every unit of pollution reduction the marginal increase in revenue (MR) is
MR= 1,200 ?10P.
How much pollution reduction should Appalachian Coal Mining undertake? Dr. C. Chen Q6: Ch 3 (15%)
Twentyfirst Century Electronics has discovered a theft problem at its warehouse and has
decided to hire security guards. The firm wants to hire the optimal number of security
guards. The following table shows how the number of security guards affects the number
of radios stolen per week.
# of security guards # of stolen per week
0
50
1
30
2
20
3
14
4
8
5
6
a. If each security guard is paid $200 a week and the cost of a stolen radio is $25, how
many security guards should the firm hire?
b. If the cost of a stolen radio is $25, what is the most the firm would be willing to pay to
hire the first security guard?
c. If each security guard is paid $200 a week and the cost of a stolen radio is $50, how
many security guards should the firm hire? Q7: Ch 3 (15%)
Bavarian Crystal Works designs and produces lead crystal wine decanters for export to
international markets. The production manager of Bavarian Crystal Works estimates total
and marginal production costs to be
TC = 10,000 + 40Q + 0.0025Q2
and
MC = 40 + 0.005Q
where costs are measured in U. S. dollars and Q is the number of wine decanters
produced annually. Because Bavarian Crystal Works is only one of many crystal
producers in the world market, it can sell as many of the decanters as it wishes for $50
apiece. Total and marginal revenue are
TR = 60Q and MR = 60
where revenues are measured in U. S. dollars and Q is annual decanter production.
a. What is the optimal level of production of wine decanters? What is the marginal
revenue from the last wine decanter sold?
b. What are the total revenue, total cost, and net benefit (profit) from selling the optimal
number of wine decanters?
c. Is the optimal profit in answer b good enough to keep Bavarian Crystal Works in the
market? Please comment on it.