Continuing to produce?

You are the general manager of TU modems Inc., and your accounting department has provided you with the following information about the total cost of producing three potential quantities of a commercial-grade modem: 100,000 Units 150,000 Units 200,000 Units Materials $ 250,000 $ 375,000 $ 500,000 Depreciation $ 900,000 $ 900,000 $ 900,000 Labor $ 10,000 $ 15,000 $ 20,000 Total costs $ 1,160,000 $ 1,290,000 $ 1,420,000 The market is saturated with modems, and your sales department has been able to identify only one potential buyer of your modems. This customer has numerous alternative ... click for more

monopolist's marginal cost

A monopolist is profit maximizing where the elasticity of demand is -2 and price is $4. What is the monopolist's marginal cost?

Risk Management

A risk-averse manager is considering two projects. The first is to introduce a new product; the second is to revamp the production facilities at the existing plant. There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not. If the rival enters, the firm will lose $20,000 if it introduces the new product, whereas revamping the production facilities will earn it $50,000 in profits. If the rival does not enter, the firm will earn $15,000 if it introduces the new product, and revamping the production facilities will net profits of $60,000. What should the manager do? Why?

Price Ceiling

Acme Water is a privately owned company that is the sole supplier of water to a rural town in Pennsylvania. The owner of the firm has provided the manager of the company an incentive to maximize the firm's profits, and the manager is currently selling 100,000 gallons of water per week at a price of $.05 per gallon. The marginal cost of water is zero, but the firm's average cost of this level of output is $.01 per gallon. a. Determine Acme Water's profits. b. Now suppose that local government imposes a price ceiling on water at a price of $.01 per gallon. Will the firm earn economic profits of zero as a result of this price ceiling? Explain. c. Does the price ceiling of $.01 per gallon re... click for more

Multicollinearity in regression model

2. You are worried about multicollinearity in your regression model. In particular, you are worried that X2 and X3 are collinear. You compute the correlation coefficient: r(X2,X3) = - 0.82. Which of the following statements do you think are true? (Circle more than one answer if you think more than one statement is true. Choose no answers if you think no answer is true.) a. OLS is no longer the minimum-variance estimator. b. If you have a small number of observations (50), it is still possible that you will obtain statistically significant estimates of β2 and β3. c. The more observations you have, the greater your chance of obtaining statistically significant estimates of ... click for more