Managerial Economics

P7. 6 Optimal insert signal Mix. The First National Bank get 3,000 inquiries following the latest advertisement describing its 30-month ira accounts in the Boston World, a local anesthetic publisher. The most recent ad in a similar advertizing tend in Massachusetts Business, a regional business cartridge publisher, depictd 1,000 inquiries. Each newspaper ad cost $500, whereas each powder pickup ad costs $cxxv. A. Assuming that excess ads would gene crop similar response regulates, is the bank racetrack an optimum mix of newspaper and magazine ads? Why or why non? No, the bank is non tallyning an best mix of newspaper and magazine ads because the optimum combination would occur when MPn / Pn = MPm / Pm ? newspaper step forwardturn 3,000 / 500 = 6 and magazine output 1,000 / cxxv = 8. consequently, amount pass on newspaper ads attracted 6 inquiries plot amount spent on magazine ad attracted 8 inquiries. So to run an optimal mix of newspaper and magazine ads, the bank has to run more magazine ads and/ or fewer newspaper ads. B. holding all else equal, how many inquiries must a newspaper ad attract for the modern advertising mix to be optimal? For the current advertising mix to be optimal, MPn / Pn = MPm / Pm therefore, to increase the newspaper output from 6 to 8, Find MPn / 500 = 8 *500 ? MPn = 4,000 *500 So inquiries gene respectd by newspaper ads would relieve integrityself to increase from 3,000 to 4,000. P7. 7 bare(a) Revenue Product of confinement. To give out serve customers interested in acquire cars over the Inter internet, clever Motors, Inc. , hired Nora Jones to suffice to customer inquiries, offer wrong quotes, and salvage orders for leads gene prescribed by the confederations clear site. During last year, Jones averaged 1. 5 vehicle gross sales per week.On average, these vehicles sold for a retail price of $25,000 and brought the dealership a net component part of $1,000 each. A. Estimate Jones annual (50 heb domad) borderline tax product. oJones peripheral tax tax income product hind end be found by the figure of speech of cars sold and the profit of each sale. MRPL = MPL * MRQ ? MRPL = (1. 5 * 50) * ($1,000) = $75,000 (Vehicles sales p/week * workweek) * (profit contribution) B. Jones earns a vile recompense of $60,000 per year, and Smart Motors births an special 28 percent of this base profit in taxes and various fringe benefits.Is Jones a economic rentee? oNo, Jones is not a profi confuse employee because her cost to be employed is $76,800 ($60,000 base salary + 28% of taxes and fringe benefits) and her borderline revenue product is only $75,000. Therefore, MRPL ($75,000) PL ($76,800). This fashion that even though Jones brings in $75,000 additional profit it costs Smart Motors $76,800 to withstand her which means she brings $1,800 of marginal loss to Smart Motors. P7. 8 Optimal Input Level. tatter Services, Inc. , offers ticket promotion and handling serve for co ncerts and sporting causes.The Sherman Oaks, California, branch office makes surd use of spot radio receiver advertising on WHAM-AM, with each 30-second ad cost $ carbon. During the past year, the following sexual relation amidst advertising and ticket sales per event has been observed Sales ( units) = 5,000 + 100A 0. 5A2 ?Sales (units) / ? publicise = 100 A Here, A represents a 30-second radio spot ad, and sales atomic upshot 18 heedful in looks of tickets. Rachel Green, autobus for the Sherman Oaks office, has been asked to recommend an appropriate level of advertising.In thought process about this hassle, Green noted its affinity to the optimal vision employment problem studied in a managerial economics course. The advertising/sales relation could be thought of as a employment subprogram, with advertising as an input and sales as the output. The problem is to find out the profit-maximizing level of employment for the input, advertising, in this production bras s. Green recognized that a measure of output shelter was postulate to solve the problem.After reflection, Green dogged that the value of output is $2 per ticket, the net marginal revenue earned by slating Services (price minus all marginal costs except advertising). A. Continuing with Greens production analogy, what is the marginal product of advertising? ** fringy Product measures additional output from one more unit of the shifting input. ** oMPA = MS/MA = ? Sales (units) / ? Advertising (OR ? Q/? A) = 100 A B. What is the order for determining the optimal amount of a resource to employ in a production system? Explain the logic underlying this rule. The rule for determining the optimal amount of a resource to employ is MRPA = PA (see slip 17) MPA * MRQ = PA (see slide 9) The above comparison turns to ?Q/? A * ? TR/? Q = ? TC/? A ?Qs stoogecel each new(prenominal) out and the equation turns to ?TR/? A = ? TC/? A This leads to peripheral Total Revenue (MTR) = Marginal To tal Cost (MTC), which means the influx = outflow. C. Using the rule for optimal resource employment, determine the profit-maximizing number of radio ads. oUsing the above equation MPA * MRQ = PA ? (100-A )* $2 = $100 $200-2A = $100 ? $100= 2A ? A=$50 P7. 9 Net Marginal Revenue.Crane, Poole & Schmidt, LLC, is a successful Boston-based law mansion. prole productivity at the firm is measured in billable moments, which vary betwixt partners and associates. collaborator time is calculate to clients at a account of $250 per hour, whereas associate time is billed at a charge per unit of $cxxv per hour. On average, each partner generates 25 billable hours per 40-hour workweek, with 15 hours spent on promotion, administrative, and supervisory responsibilities. Associates generate an average of 35 billable hours per 40-hour workweek and spend 5 hours per week in administrative and training meetings.Variable bang costs average 50 percent of revenues generated by partners and 60 percen t of revenues generated by associates. A. await the annual (50 workweek) net marginal revenue product of partners and associates. For Partners oMRPP = MPP * MRQ ? MRPP = ($25 * 50) * ($250* 100% 50%) = $156,250 (Billable hrs * workweek) * (rate billed * % overhead cost) For Associates oMRPA = MPA * MRA ? MRPA = ($35 * 50) * ($cxxv* 100% 60%) = $87,500 (Billable hrs * workweek) * (rate billed * % overhead cost) Each marginal hour of safari by partner brings the firm $250 in revenue $125 ($250 *50%) of variable costs, so a partner has a net marginal revue of $125 p/hr. ?Each marginal hour of effort by associate brings the firm $125 in revenue $75($125 *60%) of variable costs, so a partner has a net marginal revue of $50 p/hr. both(prenominal) of these reflect the marginal value of service of process output. B. If partners earn $175,000 and associates earn $70,000 per year, does the caller have an optimal combination of partners and associates? If not, why not? Make your answe r explicit and keep up any recommendations for change. Comparing partners marginal revenue products with their salary shows MRPP = $156,250 $175,000. This means that partners bring $18,750 ($175,000-$156,250) marginal loss to the firm. oComparing associates marginal revenue products with their salary shows MRPA = $87,500 $70,000. This means that associates bring $17,500 ($87,500-$70,000) marginal profit to the firm. Therefore to help move the company to an optimal combination where profit is maximized, they go away have to either reduce the number of partners or have a subatomic increase in the number of associates.This can be done by expanding the number of associates until MRPA = $70,000. After this is done we can recalculate the MRPP to see if it has change magnitude. If the new MRPP = $175,000, no other change needs to be made. Chapter 7 Power Point Problem stereophony Receivers. Do-It-Yourself, Inc. , sells budget-priced stereo receivers, in both kit out and fully-asse mbled forms. Customers who assemble their own receivers benefit from the degrade kit price of $100 per receiver. Full-service customers make happy the luxury of an assembled receiver, but pay a higher price of $150 per receiver.Both kit and fully assembled receiver prices are stable. The company has observed the following relation between the numbers of manufacture workers employed per twenty- foursome hour period and assembled receiver output Number of workersFinished receivers 00 18 214 318 420 521 A. )Construct a table showing the net marginal revenue product derived from assembly worker employment. Number of WorkersFinished receiversMarginal Product of ram (MPL)Net Marginal Revenue Product of Labor (NMRPL) (1)(2)(3)(4) = (3) x $50 00N/AN/A 188$four hundred 146$300 3184$200 4202$100 5211$50 B. )How many assemblers would Do-It-Yourself employ at a day-by-day wage rate of $long hundred? oDo-It-Yourself would employ 3 workers since from the table above, three workers NMRPL is $200 which is greater () than the $120 they would pay in wages. C. )What is the highest daily wage rate Do-It Yourself would pay to hire four assemblers per day? oTo hire four assemblers per day, the highest daily wage rate Do-It-Yourself should pay is $100 since thats the NMRPL for the fourth worker.managerial EconomicsQ1. In a state, the speed of coin is constant. received gross domestic product grows by 5% per year, the notes stock by 14% per year, and the nominal interest rate is 11 per cent. What is the accepted interest rate? A. 1 The following is provided in the headway GDP festering rate (Y)- 5% Money Stock result rate (M)-14% Nominal Interest array- 11% swiftness Of Money- Constant Real Interest send = Nominal interest rate flash . Fisher Effect By the amount of bullion equation we have M . V = P. YThe beat theory of Money assumes that V is constant and exogenous. puffiness= intensify in the Money Growth- exchange in the GDP Growth Using the above determ ine flash= 14% 5% = 9% Thus Real Interest Rate = 11%- 9%= 2% Therefore the real interest rate is familiarized for pomposity. Q. 2 Suppose a country has a bills film function (M/P)d = kY, where k is a constant parameter. The money interpret grows by 12% per year, and real income grows by 4% per year. (a) What is the average lump rate? b) How would inflation be contrastive if real income growth were higher, say 6%? Explain. (c) Suppose, instead of a constant money demand function, the velocity of money in this economy was growing steadily, say by 2% per annum because of financial innovation. How would that affect the inflation rate? Explain. A. 2 The Money demand function (M/P)d = kY, where M/P = Real Money Balances k= money stack wish to hold for each rupee of income and k= 1/V (a) just Inflation Rate 12%- 4%= 8% b) If Y=6%, so Inflation is 12% 6 %= 6% Inflation depends upon changes (in this increases) in the Money emerge and Real Income, which is given by the beat the ory of money. So if the money growth rate is greater than the real income growth rate it results in Inflation. In the (a) the money growth rate was 12% whereas real income growth rate is 4% so the Inflation rate is 8%, whereas in (b) the real income growth rate has increased to 6% and hence the inflation has rate has changed and decreased to 6%. c) The Velocity of money is not constant in this parapraxis as assumed in the Quantity theory of money. V=2% The Inflation would now therefore be determined as follows- Inflation rate = Change in Money Supply + Change in Velocity Change in Real Income Inflation rate = 12% + 2% 4%=10 % The Inflation in this case is highest and is equal to 10%, this is because the growth rate of money supply is greater than real income growth rate and also because the V is not a constant and hence the a unit of the money is being used 2% more.