Homework Assignment

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Please Answer 2 homework assignment that I attached below. The first one is ECON 5315: Homework1 , Review of Microeconomic, you must answer all the questions in this file, I also include some documents that help you to answer those questions such as 2 Econ Micro review ppt. And the second one is about chapter 2. These homework need the textbook, you could search this book Besanko, et al., Economics of Strategy, Wiley, 7 th Edition, 2015, ISBN 978-1- 119-17477-6, if you cann't find one I will take screen shot of them, but that hard to do because the file quite big to upload below. I don't know exactly how many pages for these homework, because that just answer the questions.Thank you so much.

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ECON 5315: Homework for pp. 9-37, Review of Microeconomics Counted as a 10-point assignment, but 11 points are possible. [#s 2, 3, 4 & 9 are adapted numbered questions in our text.] 2. If the ATC curve is rising, does that mean the MC curve must lie above it? Explain. (1 point) 3. Why are LRAC curves usually at or below SRAC curves? (1 point) 4. a. What is the difference between economic profit and accounting profit? (1 point) b. Why should managers mainly focus on economic profits? (1 point) c. Why do you suppose managers often focus on accounting profits? (1 point) 9. Is the prisoner’s dilemma always a Nash equilibrium? Explain. (1 point) A. Background. You do not need to know anything about the firms below in order to successfully complete this HW assignment. But this is a real case of two firms competing over a local market: I will use this example from time to time, in my chapter notes, in the HW assignments, and perhaps in quizzes and exams: HEB, headquartered in San Antonio, TX, has had grocery stores in Corpus Christi, TX for many decades. For many years it has marketed itself as a “low cost” grocery store. Until about 10 years ago, its headquarters had been in Corpus Christi. In this local market, HEB has been successful in keeping out or driving out all other major regional and national grocery competitors. Walmart first came into Corpus Christi at least 30 years ago but did not have a “super store” with a major grocery section until about 20 years ago. It markets itself as proving “always the low cost, always.” HEB opened its first local super store, called “HEB plus,” approximately 15 years ago. Thus began the headto-head competition between these two firms in this small local market. a. Suppose HEB can commit to selling a large quantity of output (through an HEB plus) or a small quantity of output (an HEB) in the Calallen area of Corpus Christi, on Farm-to-Market Road 624, before Walmart decides whether to rebuild its regular Walmart store there, replacing it with a Walmart Super Store. That is, HEB chooses whether to commit to a small quantity, or a large quantity, and then Walmart decides whether to rebuild to have a much larger one. Suppose further: If HEB commits to the small quantity and if Walmart doesn’t rebuild, HEB nets $400,000 in the first year and Walmart nets $250,000 at the existing store (on Farm-to-Market Road 624). If instead Walmart does rebuild a large store on Farm-to-Market Road 624, Walmart nets $825,000 and HEB nets $200,000. If HEB commits to the HEB plus and Wal-Mart does not rebuild, HEB nets $1,700,000 and Walmart nets $100,000 at its existing store. If instead Walmart does rebuild, Walmart nets $1,350,000 and HEB nets $550,000. i. Show the game tree described above, being careful to label accurately and completely. (Word has drawing tools; the only one you’re likely to need is the arrow. Or you can draw this free-hand and send a PDF or a photo) (2 points) ii. What is HEB’s likely decision? Why? (1 point) iii. What is Walmart’s likely decision? Why? (1 point) b. Why is it important for these two firms to know the price elasticity of demand for the products it sells? (1 point) Homework, Chapter 2 10 points possible Scenario: Suppose that in 2015, a new company called “Corpus Christi Cheer Beer” begins to produce beer to sell to local restaurants. 1. Describe 2 ways in which you would expect a company such as Miller to experience economies of scale that Corpus Christi Cheer Beer does not. (2 points) 2. Describe likely economies of scope for a company such as Miller, relative to Corpus Christi Cheer Beer, in: (1 point each) a. Services for buyers b. Purchasing inputs c. Advertising d. Employee contracts 3. What types of learning economies would you would expect Miller to have that Corpus Christi Cheer Beer does not? (2 points) 4. Using concepts from Ch. 2, take a position and argue either FOR or AGAINST diversification of Miller if it is thinking about buying a company that sells “beer nuts.” (2 points) Notes for Besanko, et al., pp. 9-37 Review the definitions and draw graphs for these concepts (Refer to PPT microeconomics review): 1. Costs in the Short Run (SR) a. Total Cost equals Total Variable Cost plus Total Fixed Cost [TC = TVC + TVC] b. Fixed v. variable in SR: i. Average Total Cost equals Average Variable Cost plus Average Fixed Cost [ATC = AFC + AVC] ii. Marginal Cost (MC) equals the change in Total Cost as output increases [MC = TC / Q], which ONLY includes variable costs [TFC / Q = 0] 2. [SR v.] the Long Run (LR) a. Economies of scale b. LR Average Cost is the envelope curve of the SR Average Cost curves 3. Sunk costs v. avoidable costs 4. Costs & profitability a. Economic costs v. accounting costs –Economic costs are all opportunity costs, unlike the rules of accounting. b. Economic profit v. accounting profit depends on the extent of opportunity costs in the accounting costs. 5. Demand & Total Revenue (TR) a. Demand curve i. Relationship of Quantity Demanded to different prices ii. Effects of other variables on Demand – shown with SHIFTS in the Demand Curve b. Price elasticity of demand i. Formula for elasticity [% change in Quantity Demanded / % change in Price] ii. Firm’s elasticity of demand is higher than the market elasticity of demand (more close substitutes) iii. What influences elasticity 1. substitutes 2. complements 3. time factor 4. preferences 5. income 6. demographics c. TR & Marginal Revenue (MR) functions i. MR = TR / Q ii. (MR(Q) = P(1 – (1/)) 6. Pricing & output decisions: produce where MR = MC to maximize profit 7. Perfect competition – for the firm & for the market a. Profit is possible in the SR [but this attracts new firms in the LR] b. LR equilibrium has enough entering so that LR profit goes to zero for the typical firm. 8. Game theory – to analyze competition when firms are interdependent/rival a. Matrix form i. Any firms exhibit a dominant strategy – but not necessarily all ii. Nash equilibrium – when all firms select their own positions/decisions no matter what others may do Is advertising a dominant strategy for both of these two restaurants, with the matrix showing what they believe to be their likely profits? Do they reach a Nash Equilibrium? La Playa Do not advertise Advertise Taqueria Jalisco Do not advertise Advertise 200 \ 200 -0- \ 300 300 \ -0100 \ 100 b. Game trees to illustrate sequential games What outcome would you expect for these 2 cereal firms, deciding whether to introduce a crispy cereal OR a sweet cereal? Crispy Crispy (-5, -5) Sweet (10, 20) Crispy (20, 10) Sweet (-5, -5) Firm 2 Firm 1 Sweet Firm 2 Managerial Economics ECON 5315.W01 Marilyn Spencer, Ph.D. Professor of Economics Microeconomics Review Self-Paced Review List of concepts in this review: 1. Cost functions: Short run v. long run (Slides 3-20) 2. Sunk costs v. avoidable costs (Slide 21) 3. Costs & profitability (Slide 22) 4. Demand & TR & Profitability (Slides 23-44) 5. Pricing & output decision: produce where MR = MC to maximize profit (Slide 45) 6. Perfect competition: firm & the market (Slides 46-50) 7. Monopoly (Slides 51-59) 8. Monopolistic competition (Slides 60-64) 9. Game theory – to analyze competition when firms are interdependent/rival (Slides 65-73) 1. Cost functions The Short Run and the Long Run in Economics: Implicit Costs versus Explicit Costs Opportunity cost The highest-valued alternative that must be given up to engage in an activity. Explicit cost A cost that involves spending money. Implicit cost A nonmonetary opportunity cost. The Short Run and the Long Run in Economics Short run The period of time during which at least one of a firm’s inputs is fixed. The short run is the production period. Long run The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant. The long run is the planning period, when companies consider replacing any resources that are now fixed in production. The Short Run and the Long Run in Economics: The Difference between Fixed Costs & Variable Costs – The Short Run Production function The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs. Total cost The cost of all the inputs a firm uses in production. Variable costs Costs that change as output changes. Fixed costs Costs that remain constant as output changes. Total Cost = Fixed Cost + Variable Cost TC = FC + VC Short Run & Long Run in Economics: The Production Function A First Look at the Relationship between Production and Cost Average total cost (ATC) Total cost (TC) divided by the quantity (Q) of output produced. TC /Q = ATC The Relationship between Short-Run Production and Short-Run Cost Marginal Cost Marginal cost The change in a firm’s total cost from producing one more unit of a good or service. ΔTC MC = ΔQ We can use the example from the table below to look at the relationships among cost concepts illustrated by the graphs on the following slides. From the Total Cost Info in the next column, we calculate the average costs and marginal costs, using the formulas on the 2 previous slides. Short Run and Long Run in Economics: First Look at the Relationship between Production & Cost FIGURE 1* Graphing Total Cost and Average Total Cost The info in the graph shows the relationship between the Q and TC and ATC, for a typical production function. Costs Cost per unit ATC of production TC of production Panel (a) shows that TC increases as the level of production increases. Panel (b), shows that the ATC is roughly Ushaped: As production increases from low levels, ATC falls before rising at higher levels of production. *This figure , the example on which it is based, and those that follow are taken from Hubbard & O’Brien’s Microeconomics, 3rd ed. Relationship between Short-Run Production & Short-Run Cost: Why Are the Marginal and Average Cost Curves U Shaped? FIGURE 2 MC and ATC of Producing Pizzas We can use the info in the table to calculate MC and ATC of producing pizzas. For the first 2 workers hired, the marginal productivity increases. This increase causes the MC of production to fall. For the last 4 workers hired, the marginal productivity falls. This causes the MC of production to go up. Thus, the MC curve falls and then rises - that is, has a U shape -because the marginal productivity rises and then falls. When MC is below ATC, average total cost falls. When MC is above ATC, average total cost rises. The relationship between MC and ATC explains why the ATC curve also has a U shape. FIGURE 3 The Relationship between Marginal Cost and Average Cost When marginal cost is greater than average total cost, marginal cost must be increasing. Review: Graphing Cost Curves Average fixed cost Fixed cost divided by the quantity of output produced. Average variable cost Variable cost divided by the quantity of output produced. TC Average total cost = ATC = Q FC Average fixed cost = AFC = Q VC Average variable cost = AVC = Q ATC = AFC + AVC Graphing Cost Curves FIGURE 4 Costs at Pizza Restaurant Costs of making pizzas are shown in the table & in the graph. Notice 3 important facts about the graph: (1) MC, ATC, and AVC curves are all U-shaped, and the MC curve intersects both the AVC curve and ATC curve at their minimum points. (2) As output increases, AFC gets smaller and smaller. (3) As output increases, the difference between ATC and AVC decreases. Graphing Cost Curves Understand the following three key facts about Figure 10-5: 1. MC, ATC, and AVC curves are all U-shaped, and the MC curve intersects the AVC and ATC curves at their minimum points. When MC is < either AVC or ATC, it causes each of them to decrease. When MC is > AVC or ATC, it causes each of them to increase. Therefore, when MC = AVC or ATC, they must be at their minimum points. 2. As Q increases, AFC gets smaller and smaller. This happens because in calculating AFC, we are dividing something that gets larger and larger - Q - into something that remains constant - TFC. Firms often refer to this process of lowering AFC by selling more Q as “spreading the overhead” (where “overhead” refers to fixed costs). As Q increases, the difference between ATC and AVC decreases. This happens because the difference between ATC and AVC is AFC, which gets smaller as output increases. 3. Costs in the Long Run Economies of Scale Long-run average cost curve A curve showing the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed. Economies of scale The situation when a firm’s long-run average costs fall as it increases output. If a small bookstore expects to sell only 1,000 books/ mo., then it will be able to sell that Q of books at the lowest average cost of $22/book if it builds the small store represented by the ATC curve on the left of the figure. A larger bookstore will be able to sell 20,000 books/ mo. at a lower cost of $18/book. A bookstore selling 20,000 books/mo. and a bookstore selling 40,000 books/mo. will experience constant returns to scale and have the same ATC. A bookstore selling 20,000 books/mo. will have reached minimum efficient scale. Very large bookstores will experience diseconomies of scale, and their average costs will rise as sales increase beyond 40,000 books/mo. FIGURE 5 The Relationship between Short-Run Average Cost and Long-Run Average Cost Costs in the Long Run Long-Run Average Total Cost Curves for Bookstores Constant returns to scale The situation when a firm’s long-run average costs remain unchanged as it increases output. Minimum efficient scale The level of output at which all economies of scale are exhausted. Diseconomies of scale The situation when a firm’s long-run average costs rise as the firm increases output. The Colossal River Rouge: Diseconomies of Scale at Ford Motor Company Smaller factories produced the Model A at a lower average cost than was possible at the River Rouge plant. Was Ford’s River Rouge plant too big? Conclusion Table 10-4 A Summary of Definitions of Cost SYMBOLS AND EQUATIONS TERM DEFINITION Total cost The cost of all the inputs used by a firm, or fixed cost plus variable cost TC Fixed costs Costs that remain constant when a firm’s level of output changes FC Variable costs Costs that change when the firm’s level of output changes VC TC Q TC ATC = Q MC = Marginal cost Increase in total cost resulting from producing another unit of output Average total cost Total cost divided by the quantity of output produced Average fixed cost Fixed cost divided by the quantity of output produced Average variable cost Variable cost divided by the quantity of output produced Implicit cost A nonmonetary opportunity cost ― Explicit cost A cost that involves spending money ― AFC = FC Q AVC = VC Q 2. Sunk costs v. avoidable costs Sunk cost A cost that has already been experienced, for which no recovery is possible A sunk cost is a cost paid in the past, for some item that now has no value in the market. For example, if you purchased equipment that is designed solely to produce a product no longer in demand, only the salvage value of the raw materials may be opportunity cost. Avoidable (or opportunity) cost The highest-valued alternative 3. Costs & profitability Economic (or opportunity) cost The highest-valued alternative not taken An economic cost need not be a cost paid for by the company. It is any foregone opportunity. Economic costs often include the value of the opportunity not taken, so economic costs often exceed accounting costs. Accounting cost An allowable expense paid for by a company Given that economic cost often exceeds accounting cost, it follows that economic profit often is lower than accounting profit. 3. Demand & total revenue & profitability Quantity demanded The amount of a well defined good or service that a consumer is willing and able to purchase at a given price, during some given time period. Demand curve A curve that shows the relationship between the price of a well defined product and the quantity of the product demanded, during some given time period. Market demand The demand by all the consumers of a given good or service. The Demand Side of the Market: Demand Schedules and Demand Curves FIGURE 6 A Demand Curve As price changes, consumers change the quantity of energy drinks they are willing to buy. We can show this in a table or as a demand curve on a graph. They both show that as the price of energy drinks falls, the quantity demanded rises. When the price is $3.00, consumers buy 60 million cans/day. When the price drops to $2.50, consumers buy 70 million cans. Therefore, the demand curve for energy drinks is downward sloping. The Law of Demand Law of demand The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease. Market demand The demand for a product by all the consumers in a given market (which might be a geographical area), which is the summation of all individual demand curves (summing the quantities demanded fat each price. Holding Everything Else Constant: The Ceteris Paribus Condition Ceteris paribus (“all else equal”) condition The requirement that when analyzing the relationship between two variables—such as price and quantity demanded— other variables must be held constant. A shift of a demand curve is an increase or a decrease in demand. A movement along a demand curve is an increase or a decrease in the quantity demanded. Holding Everything Else Constant: The Ceteris Paribus Condition FIGURE 7 Shifting the Demand Curve When consumers increase the quantity of a product they want to buy at a given price, the market demand curve shifts to the right, from D1 to D2. When consumers decrease the quantity of a product they want to buy at a given price, the demand curve shifts to the left, from D1 to D3. Variables That Shift Market Demand Many variables other than price can influence market demand. 1. Income Normal good A good for which the demand increases as income rises and decreases as income falls. Inferior good A good for which the demand increases as income falls and decreases as income rises. Are Big Macs an Inferior Good? Big Macs seem to fit the economic definition of an inferior good because demand increased as income fell. But remember that inferior goods are not necessarily of low quality, they are just goods for which consumers increase their demand as their incomes fall. McDonald’s restaurants experienced increased sales during 2008 and 2009, despite the recession. Variables That Shift Market Demand, cont. 2. Prices of related goods Substitutes Goods and services that can be used for the same purpose. Complements Goods and services that are used together. 3. Tastes/Preferences Consumers can be influenced by an advertising campaign for a product. And our tastes can also change because of new interests, new friends, and new decisions over time. Variables That Shift Market Demand 4. Size of the population and demographics Demographics The characteristics of a population with respect to age, race, and gender. 5. Expectations: expected future prices, as well as expectations of their income, etc. Consumers choose not only which products to buy but also when to buy them. The Price Elasticity of Demand & its Measurement Elasticity A measure of how much one economic variable responds to changes in another economic variable. Price elasticity of demand The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the ...
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Homework, Chapter 2
Question 1
The economies of scale that Miller would experience in a positive way would be inventories and purchasing.
This is because the market size of Miller is bigger compared to that of the local beer company thus exceeds their
purchasing power. The inventories economies of scale is affected by their inventory lower ratio to the sales thus
achieving a similar levels of stock-outs.
Question 2
a. Services for buyers
As a result of high capital base for Miller Company, it can provide more efficient economies of scope in relation
to the buyers’ services. In addition, the company can offer extensive distribution channels which bring
innovative and new services to the customers.
b. Purchasing inputs
Due to the company’s large production volumes, it will receive input purchase discounts and better deals on the
high purchase volumes.
c. Advertising
Miller is able to cut cost of advertisement because it can advertise its wide variety of products in a single
advertisement.
d. Employee contracts
Employees’ contracts will help the company in division of labour, mass production, and specialized techniques
in production of their products. It will also keep ...

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