1. (10 pts.) Stella Ann Freeman is having a difficult time deciding whether or not to purchase a new car. How would understanding the concept of opportunity costs help her make a decision?
2,10 pts.) Referring to the table below, hiring a driver costs $10. Each machine costs $100. Which method should he use and why?
An independent trucker has the following options. If he buys expensive machinery then he can hire fewer drivers to deliver the same output. Over the course of this month he has to deliver to 50 spots. To do this job he ha 4 possible combinations of output that he can use:
Method 1:
20 drivers
10 machines
Method 2:
50 drivers
2 machines
Method 3:
100 drivers
0 machines
Method 4:
10 drivers
12 machines
3,10 pts.) Enron will be an example of a dysfunctional company for many years to come. It was clearly a company riddled with fraud and excess and its conduct drove it into bankruptcy. The text argues that individual behavior was not at the core of Enron’s problems. What were the problems with this corporation from an organizational architecture point of view?
4,10 pts.) For many corporations such as utility companies, a major portion of the cost of production is fixed in the short run. Should these very large fixed costs be ignored when the executives are making output and pricing decisions? Why?
5. (lOpts.) Choose a real-life example of a firm that you think is part of an oligopoly market and describe the characteristics of the market structure that explain why the firm would be classified as such.
6,10 pts., 2 pts each) You are the manager for Dunkin Donuts and know the following elasticities:
n=1.5 = 1.2 n,„, = 0.5 =
n is the price elasticity of demand for Dunkin Donuts (DD) glazed doughnuts, elasticity of demand between DD glazed doughnuts and Krispy Kreme (KK) glazed doughnuts, n,,,„ the cross elasticity of demand between DD glazed doughnuts and DD French Vanilla coffee, and n. is the income elasticity of DD glazed doughnuts.
a) If you want to increase your sales of glazed doughnuts by 3096, in what direction and by how much do you need to change the price?
b) If you make the percentage price change that you calculated in part a) will total revenue increase or decrease? How do you know?
