Instructions: Please download this examination and provide a short essay and/or quantitative analyses with an explanation of your answer
(s). Please be sure to read each of the questions carefully. There are not trick questions. Please show your work for all quantitative
questions in order to be eligible for maximum points. Please be sure to return your completed FE as an attachment to this assignment
module not later than December 19, 2015.
1. (20 Points): What is the difference between economies of scale and economies of scope?
Solution:
2. (10 Points): You were able to purchase two tickets to an upcoming concert for $100 apiece when the concert was first announced
three months ago. Recently, you saw that StubHub was listing similar seats for $225 apiece. What does it cost you to attend the concert?
Solution:
3. (10 Points): Children in poor neighborhoods have bleak outlooks on life and do not see much gain to studying. A recent experiment
is paying children in poor neighborhoods $100 for each “A” they earn in a six-week grade reporting cycle. How does this affect behavior?
Is this an extent or discrete decision?
Solution:
4. (30 Points): Your insurance firm processes claims through its newer, larger high-tech facility and its older, smaller low-tech
facility. Each month, the high-tech facility handles 10,000 claims, incurs $100,000 in fixed costs and $100,000 in variable costs. Each
month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs. If you anticipate a
decrease in the number of claims, where will you lay off workers?
Solution:
5. (20 Points): Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to
spend their time on reducing costs or on pricing strategies?
Solution:
6. (15 Points): Concert prices have increased coincidentally with illegal downloading of music off the Internet. Why?
Solution:
7. (30Points): A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost
no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the
auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged
different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined
that men value a simple microwave at $70 and one with auto-defrost at $80 while women value a simple microwave at $80 and one with auto-
defrost at $150.
a. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue?
b. What if women comprise the bulk of microwave shoppers?
Solution:
8. (20 Points): Your company has a customer who is shutting down a production line, and it is your responsibility to dispose of the
extrusion machine.
• The company could keep it in inventory for a possible future product and estimates that the reservation value is $250,000.
• Your dealings on the secondhand market lead you to believe that there is a 0.4 chance a random buyer will pay $300,000, a 0.25
chance the buyer will pay $350,000, a 0.1 chance the buyer will pay $400,000, and a 0.25 chance it will not sell.
• If you must commit to a posted price, what price maximizes profits?
Solution: