Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 8, Problem 17PAA
To determine
To explain:Whether 100000 PCs offer to be accepted or not.
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You've just been hired to run a division of a toy manufacturing company. Your boss informs you that the doll line in your division will be discontinued and replaced by a new and improved set of dolls later this year. He also tells you that he wants you to raise prices on the current doll line by 20% in order to protect profitability during the transition. You go to a number of sources including field sales reps, market research, and other division heads to ask them how responsive customers have been to changes in prices in the past. They tell you that a 10% increase in price always leads to a 5% decrease in sales volume at the firm.
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You are the general manager of a firm that manufactures personal computers. Due to a soft economy, demand for PCs has dropped 50 percent from the previous year. The sales manager of your company has identified only one potential client, who has received several quotes for 10,000 new PCs. According to the sales manager, the client is willing to pay $800 each for 10,000 new PCs. Your production line is currently idle, so you can easily produce the 10,000 units. The accounting department has provided you with the following information about the unit (or average) cost of producing three potential quantities of PCs: Based on this information, should you accept the offer to produce 10,000 PCs at $800 each? Explain.
Bloomswood Hotel is situated in Forkland, a picturesque town in the mountain region of a country. Allen Grabos works as a gourmet chef at the hotel that caters mostly to tourists. In a conversation with his wife, Delia Grabos, Allen claims that he is underpaid. The hotel makes up to $500,000 per year but his annual salary is only around $28,000 a year. Delia, however, is of the opinion that since new hotels and inns are expected to open in Forkland, the salaries paid to hotel staff in the area should increase.
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