ECN 601 Week 7 Problems Chapters 21 and 22
(ECN 601 Week 7 Problems, ECN 601 Week 7 Problems)
Problems: Chapters 21 and 22 Assessment Description
Complete Problems in Chapters 21 and 22 in MindTap for Managerial Economics: A Problem Solving Approach. Access MindTap through the learning management system classroom.
1 . Individual Problems 21-1
When real estate agents sell their own, rather than clients’, houses, they leave the houses on the market for a longer time (10 days longer on average) and wind up with better prices. Suppose that real estate agents earn a commission equal to 3% of the sale value of each house that they help sell. Suppose a real estate agent has an offer on a house of $600,000. The agent can get a 2% higher offer with more effort and by leaving the house on the market for a few more weeks.
Suppose a real estate agent has an offer on a house that she owns. The agent has a current offer of $600,000, but can get a 2% higher offer with more effort and by leaving the house on the market for a few more weeks. Assume that all of the commission is paid back to the agent, since she will act as the agent for the sale.
2 . Individual Problems 21-2
Planes frequently push back from the gate on time, but then wait 2 feet away from the gate until it is time to queue up for takeoff. This increases fuel consumption and increases the time that passengers must sit in a cramped plane awaiting takeoff. The following table shows the pay schedule for the flight crew.
Per diem pay indicates how much the flight crew earns once it checks into the airport. Holding pay indicates how much the flight crew earns after it loads the plane. Hourly wage indicates how much the flight crew earns after it pushes back from the gate and turns on the beacon.
In this scenario, who has an incentive to push back from the gate as early as possible? Check all that apply.
True or False: Allowing the airline to decide when to push back from the gate would reduce incentives to push back from the gate too early.
3 . Individual Problems 21-5
Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies that can’t raise funds through other means. In exchange for this financing, VCs receive a share of a company’s equity, and the founders of the firm typically stay on and continue to manage the company.
4 . Individual Problems 22-1
Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes increases earnings by $60, the second by $54, the third by $48, and so on, until the tenth unit increases profit by just $6.
The cost the upstream mill incurs for producing enough paper (one “unit” of paper) to make one unit of boxes is $6.50.
Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes. Furthermore, assume that fixed costs are $0 for the paper mill.
The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices.
In the following table, fill in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at each given price.
5 . Individual Problems 22-4
Reduction of incentive conflicts between division managers is an advantage of basing incentive compensation of division managers on companywide profit.
Futura Furniture Products manufactures upscale office furniture for the “Office of the Future.” The sales division comprises regionally based sales offices made up of sales representatives and regional managers. Sales representatives—who report to the regional managers—conduct direct sales efforts with customers in their regions. As part of the sales process, representatives gather information about likely future orders and convey that information back to the regional managers. Regional managers use that information to create sales forecasts, which are then used as the basis for manufacturing schedules.
Sales representatives and regional managers are both compensated on a salary plus commission (percentage of revenue, as pricing is centrally controlled). However, a regional manager’s commission is adjusted based on regional sales that exceed the forecast target.
