Managerical Economics

timer Asked: May 5th, 2013

Question Description

I need an explanation for this Business question to help me study.

Book: Froeb and McCann, Managerial Economics—A Problem Solving Approach, 2nd edition, 2009


1.  United Supermarket located in Weatherford, OK occasionally holds a “better than tax free” sale for Saturday shoppers.  Your total purchase will be reduced by 9.5% if you shop at United on a tax free day. Please provide at least two economic reasonings for this strategy.

2.  Please provide two examples, one of adverse selection and one of moral hazard, in online learning. 

3.  Choose an online store you or your friends have shopped before.

a.  Name the online store/website.

b.  List and analyze their indirect price discrimination strategies.

4.  In 2011, JCPenney hired Ron Johnson, a former Apple executive, to turn its sales around. Several strategies he conducted included:

(1)  He scrapped salespeople’s commissions in favor of fixed hourly wages.

(2)  He set up in-store boutiques for famous brands.

(3)  He eliminated coupons, clearance racks, and sales events, and introduced a “fair and square” pricing.

a.  Being a customer, are you in favor of JCPenney’s “fair and square” pricing strategy? Why or why not.

b.  Ron Johnson was dismissed on April 6th because he failed to increase JCPenney’s sales. Being a future Chief Executive Officer, what did you learn from his story? (Answer this question from the aspects of incentive mechanism and price discrimination)

5.  You and a classmate are assigned as study partners. The following matrix shows the payoffs from shirking and working. If you both work hard, you both receive a grade of A.  If one of you shirks, both of you will receive a grade of B and the shirker will receive happiness from leisure. If both of you shirk, you both receive a grade of C and happiness from leisure.






C+Leisure , C+Leisure

B+Leisure , B


  B  , B+Leisure

  A ,  A

Suppose both students rank the outcomes as follows:

(1) A grade of B and leisure is better than

(2) A grade of A and no leisure, which is better than

(3) A grade of C and leisure, which is better than

(4) A grade of B and hard work.

a.  Assign “numbers” to this payoff matrix and make (shirk, shirk) the Nash equilibrium.

b.  Suppose you and your classmate aim to achieve academic excellence (earning a grade of A). Provide solutions to get out of the “prisoner’s dilemma”.

Suppose both students rank the outcomes as follows. Now it becomes a game of chicken with two equilibria.

(1) A grade of B and leisure is better than

(2) A grade of A and no leisure which is better than

(3) A grade of B and hard work which is better than

(4) A grade of C and leisure.

c.  Assign “numbers” to this payoff matrix. What are the Nash equilibria?

d.  Provide solution(s) to change the game to your advantage (improve your payoff from the game).

6. Choose any of your favorite movies or cartoons that illustrate the following economic concepts.

Fixed (Sunk) cost Fallacy, Hidden cost Fallacy, Economies of scale and scope, Supply and demand, Elasticity, Pricing commonly own products (substitutes or complements), Direct price discrimination, Indirect price discrimination, Strategic games, Adverse selection, Moral hazard.

a.  Briefly explain the plots.

b.  How does the movie/cartoon relate to the economics concepts?

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