MBA 540 Mid-term Exam

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?
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 Enrons 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. (10pts.)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 assuch.
6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities:

?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5

? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is the cross
elasticity of demand between DD glazed doughnuts and Krispy Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.

a) If you want to increase your sales of
glazed doughnuts by 30%, 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?
c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage and in what
direction?
d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts glazed doughnuts will
change by what percentage and in what direction?
e) If average income increases by 5% by
what percentage and in what direction will the demand for Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an inferior good and
how do you know?
f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and dryer combinations.
Two pricing strategies exist: price high or price low. The profit from each of
the four possible combinations of decisions is given in the following payoff
matrix:

Westinghouses price

High
($4000)

Low
($2000)

General Electrics
price

High ($4000)

W: $10,000,000

GE: $10,000,000

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W: $16,000,000

GE: $-4,000,000

Low ($2000)

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W: $-4,000,000

GE: $16,000,000

W: $4,000,000

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GE: $4,000,000

Payoffs
in dollars of profit.

a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the best financial
outcome?
b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?
c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000 and earn a profit of
$4,000,000 and for General Electric to set its price at $2,000 and earn a
profit of $4,000,000.

d) (2 pts.) Why do we
see that the strategy that results is not the strategy that offers both players
the best financial outcome?
MBA 540 Mid-term Exam 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? 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 Enrons 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. (10pts.)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 assuch.6. (10 pts.; 2 pts each) You are the manager for Dunkin
Donuts and know the following elasticities: ?= 1.5 ?
I = 1.2 ?
xy1 = 0.5 ?
xy2 = -0.5 ? is the price elasticity
of demand for Dunkin Donuts (DD) glazed doughnuts, ?xy1 is the cross
elasticity of demand between DD glazed doughnuts and Krispy Kreme (KK) glazed
doughnuts, ?xy2 is the cross elasticity of demand between DD glazed
doughnuts and DD French Vanilla coffee, and ? I is the income
elasticity of DD glazed doughnuts.a) If you want to increase your sales of
glazed doughnuts by 30%, 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?c) Krispy Kreme lowers its price of
glazed doughnuts by 20%. The demand for
Dunkin Donuts glazed doughnuts will change by what percentage and in what
direction?d) Dunkin Donuts raises the price of its
French Vanilla coffee by 15%. The demand for Dunkin Donuts glazed doughnuts will
change by what percentage and in what direction?e) If average income increases by 5% by
what percentage and in what direction will the demand for Dunkin Donuts glazed
doughnuts change? Are DD glazed doughnuts a normal good or an inferior good and
how do you know?f) 7. (10 pts.) Westinghouse and General Electric
are competing on the newest version of clothes washer and dryer combinations.
Two pricing strategies exist: price high or price low. The profit from each of
the four possible combinations of decisions is given in the following payoff
matrix:High
($4000)Low
($2000)
W: $10,000,000GE: $10,000,000.gif”>
W: $16,000,000GE: $-4,000,000Low ($2000).gif”>
W: $-4,000,000GE: $16,000,000
W: $4,000,000GE: $4,000,000Payoffs
in dollars of profit.a) (2 pts.) Which
strategy offers both Westinghouse and General Electric the best financial
outcome?b) (2 pts.) Does either firm have a dominant strategy? If
yes, which firm and what strategy?c) (4 pts.) The Nash
equilibrium is for Westinghouse to set its price at $2,000 and earn a profit of
$4,000,000 and for General Electric to set its price at $2,000 and earn a
profit of $4,000,000. d) (2 pts.) Why do we
see that the strategy that results is not the strategy that offers both players
the best financial outcome?