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Solution Manual for Managerial Economics and Business Strategy 10th Michael Baye, Jeff Prince
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Solution Manual for Managerial Economics and Business Strategy 10th Michael Baye, Jeff Prince
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COMPLETE SOLUTION MANUAL FORh h h
Managerial Economics and Business Strategy 10th Edition
h h h h h h
By Michael Baye, Jeff Prince
h h h h h
Chapter 1 h
The Fundamentals of Managerial Economics
h h h h
Answers to Questions and Problems
h h h h h
1. This hsituation hbest hrepresents hproducer-producer hrivalry. h Here, hSouthwest his ha
hproducer hattempting hto hsteal hcustomers haway hfrom hother hproducers hin hthe hform
hof hlower hprices.
2. The hmaximum hyou hwould hbe hwilling hto hpay hfor hthis hasset his hthe hpresent hvalue, hwhich his
250,000 250,000 250,000 250,000 250,000
𝑃𝑉 h = h +h +h +h +h
(1 h+ h0.08) h (1 h+ h0.08) h (1 h+ h0.08) h (1 h+ h0.08) h (1 h+ h0.08)5
2 3 4
= h $998,177.51
3.
a. Net hbenefits hare hN(Q) h= h20 h+ h24Q h– h4Q2.
b. Net hbenefits hwhen hQ h= h1 hare hN(1) h= h20 h+ h24 h– h4 h= h40 hand hwhen hQ h= h5 hthey hare
N(5) h= h20 h+ h24(5) h– h4(5)2 h= h40.
c. Marginal hnet h benefits hare hMNB(Q) h= h24 h– h8Q.
d. Marginal hnet h benefits hwhen h Q h h1 h are hMNB(1) h= h24 h– h8(1) h= h16 hand hwhen h Q
h h5
they hare hMNB(5) h= h24 h– h8(5) h= h-16.
e. Setting hMNB(Q) h= h24 h– h8Q h= h0 hand hsolving hfor hQ, hwe hsee hthat h net hbenefits hare
maximized hwhen hQ h= h3.
f. When hnet hbenefits hare hmaximized hat h Q h= h3, hmarginal hnet hbenefits hare hzero. hThat
h is,
MNB(3) h= h24 h– h8(3) h= h0.
4.
a. The hvalue hof hthe hfirm hbefore hit h pays hout hcurrent hdividends his
1 h+ h0.06
𝑃𝑉𝑓𝑖𝑟𝑚 = h $400,000h( )
0.06 h− h0.04
= h $21.2 hmillion.
Managerial hEconomics hand hBusiness hStrategy, h10e Page h1
Copyright h© h2022 hby hMcGraw-Hill hEducation.
All hrights hreserved. hNo hreproduction hor hdistribution hwithout hthe hprior hwritten hconsent hof hMcGraw-Hill
Education.
, b. h h The hvalue hof hthe hfirm himmediately hafter hpaying hthe hdividend his
Page h2 Michael hR. hBaye h& hJeffrey hT.
Prince
Copyright h© h2022 hby hMcGraw-Hill hEducation.
All hrights hreserved. hNo hreproduction hor hdistribution hwithout hthe hprior hwritten hconsent hof hMcGraw-Hill
Education.
, 1 h+ h0.04 h
𝑃𝑉𝐸𝑥−𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 h= h$400,000 h( h )
𝑓𝑖𝑟𝑚
0.06 h− h0.04
= h $20.8 hmillion.
5. The hpresent hvalue hof hthe hperpetual hstream hof hcash hflows. hThis his hgiven hby
𝐶𝐹 $120
𝑃𝑉𝑃𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 h = =h = h $4,000
𝑖h h 0.03 h
6. The hcompleted htable hlooks hlike hthis:
Marginal
Control Total Total Net Marginal Marginal
hNet
hVariabl hBenefit hCost hBenefit hBenefit hCost
hBenefit
e hQ s hB(Q) hC(Q s hN(Q) hMB(Q) hMC(Q)
MNB(Q)
)
100 1200 950 250 210 60 150
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
104 1940 1290 650 170 100 70
105 2100 1400 700 160 110 50
106 2250 1520 730 150 120 30
107 2390 1650 740 140 130 10
108 2520 1790 730 130 140 -10
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
a. Net hbenefits hare hmaximized hat hQ h= h107.
b. Marginal hcost his hslightly hsmaller hthan hmarginal hbenefit h(MC h= h130 hand hMB h=
h140). hThis his hdue hto hthe hdiscrete hnature hof hthe hcontrol hvariable.
7.
a. The hnet hpresent hvalue hof hattending hschool his hthe hpresent hvalue hof hthe hbenefits
hderived hfrom hattending hschool h(including hthe hstream hof hhigher hearnings hand hthe
hvalue hto h you hof hthe hwork henvironment hand hprestige hthat h your heducation
hprovides), hminus hthe hopportunity hcost hof hattending hschool. hAs hnoted hin hthe htext,
hthe hopportunity hcost hof hattending hschool his hgenerally hgreater hthan hthe hcost hof
hbooks hand htuition. hIt his hrational hfor han hindividual hto henroll hin hgraduate hschool
hwhen hhis hor hher hnet hpresent hvalue his hgreater hthan hzero.
b. Since hthis hdecreases hthe hopportunity hcost hof hgetting han hM.B.A., hone hwould
hexpect hmore hstudents hto happly hfor hadmission hinto hM.B.A. hPrograms.
8.
Managerial hEconomics hand hBusiness hStrategy, h10e Page h3
Copyright h© h2022 hby hMcGraw-Hill hEducation.
All hrights hreserved. hNo hreproduction hor hdistribution hwithout hthe hprior hwritten hconsent hof hMcGraw-Hill
Education.
, a. Her haccounting hprofits hare h$170,000. hThese hare hcomputed has hthe
hdifference hbetween hrevenues h($200,000) hand hexplicit hcosts h($30,000).
b. By hworking has ha hpainter, hJaynet hgives hup hthe h$110,000 hshe hcould hhave hearned
hunder hher hnext hbest halternative. hThis himplicit hcost hof h$110,000 his hin haddition hto
hthe
$30,000 hin hexplicit hcosts. hSince hher heconomic hcosts hare h$140,000, hher heconomic
hprofits hare h$200,000 h- h$140,000 h= h$60,000.
9.
a. Total hbenefit hwhen hQ h= h2 his hB(2) h= h20(2) h– h2*22 h= h32. hWhen hQ h= h10, hB(10)
2
h= h20(10) h– h2*10 h= h0.
b. Marginal hbenefit hwhen hQ h= h2 his hMB(2) h= h20 h– h4(2) h= h12. hWhen hQ h= h10, hit
his hMB(10) h= h20 h– h4(10) h= h-20.
c. The hlevel hof hQ hthat hmaximizes htotal hbenefits hsatisfies hMB(Q) h= h20 h– h4Q h= h0, hso h Q
= h5.
d. Total hcost hwhen hQ h= h2 his hC(2) h= h4 h+ h2*22 h= h12. h When hQ h= h10 hC(Q) h= h4 h+
2
h2*10 h= h204.
e. Marginal hcost hwhen hQ h= h2 his hMC(Q) h= h4(2) h= h8. hWhen hQ h= h10 hMC(Q) h= h4(10)
h= h40.
f. The hlevel hof hQ hthat hminimizes htotal hcost his hMC(Q) h= h4Q h= h0, hor hQ h= h0.
g. Net hbenefits hare hmaximized hwhen hMNB(Q) h= hMB(Q) h- hMC(Q) h= h0, hor h20 h– h4Q
h– h4Q h= h0. h Some halgebra hleads hto hQ h= h20/8 h= h2.5 has hthe hlevel hof houtput hthat
hmaximizes hnet hbenefits.
10.
a. The hpresent hvalue hof hthe hstream hof haccounting hprofits his
(150,000 h− h50,000) (150,000 h− h50,000) (150,000 h− h50,000)
𝑃𝑉 + + = h $262,431.60
1.07 (1.07)2 (1.07)3
h=
b. The hpresent hvalue hof hthe hstream hof heconomic hprofits his
(150,000 h− h50,000 h− h65,000) (150,000 h− h50,000 h−
𝑃𝑉 h = +
1.07 h 65,000)
(150,000 h− h50,000 h− h65,000) (1.07)2
+ = h $91,851.06
(1.07)3
1+𝑖
11. First, hrecall hthe hequation hfor hthe hvalue hof ha hfirm: = ( ). h Next, h solve h this
𝑖−g
h 𝑃𝑉𝑓𝑖𝑟𝑚 h 𝜋0
(1+𝑖)𝜋0
equation hfor hg hto hobtain h𝑔 h = h 𝑖 h − h . h Substituting h in hthe hknown hvalues himplies ha
𝑃𝑉𝑓𝑖r𝑚
(1+0.09)25,000 h
growth hrate hof: h𝑔 h = h 0.09 h− h = h 0.0355 hor h3.55 hpercent. hThis hwould hseem
500,000
to hbe ha hreasonable hrate hof hgrowth: h 0.0355 h< h0.09 h(g h< hi).
Page h4 Michael hR. hBaye h& hJeffrey hT.
Prince
Copyright h© h2022 hby hMcGraw-Hill hEducation.
All hrights hreserved. hNo hreproduction hor hdistribution hwithout hthe hprior hwritten hconsent hof hMcGraw-Hill
Education.
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