marketing firm

Jaynet spends $30,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm – one offer was for $110,000 per year, and the other was for $80,000. However, she turned both jobs down to continue a painting career. If Jaynet sells 25 paintings per year at a price of $8,000 each:

a. What are her accounting profits?

$

b. What are her economic profits?

$

The demand curve for product X is given by QXd = 520 – 4PX.

a. Find the inverse demand curve.

PX = – QXd

Instructions: Round your answer to the nearest penny (2 decimal places).

b. How much consumer surplus do consumers receive when Px = $50?

$

c. How much consumer surplus do consumers receive when Px = $30?

$

d. In general, what happens to the level of consumer surplus as the price of a good falls?

The level of consumer surplus as the price of a good falls.

You are the manager of a firm that receives revenues of $40,000 per year from product X and $80,000 per year from product Y. The own price elasticity of demand for product X is -1.5, and the cross-price elasticity of demand between product Y and X is -1.8.

How much will your firm’s total revenues (revenues from both products) change if you increase the price of good X by 1 percent?

Instructions: Round your answer to the nearest dollar. Include a minus (-) sign if applicable.

$

An economist estimated that the cost function of a single-product firm is:

C(Q) = 50 + 25Q + 30Q2 + 5Q3.

Based on this information, determine the following:

a. The fixed cost of producing 10 units of output.

$

b. The variable cost of producing 10 units of output.

$

c. The total cost of producing 10 units of output.

$

d. The average fixed cost of producing 10 units of output.

$

e. The average variable cost of producing 10 units of output.

$

f. The average total cost of producing 10 units of output.

$

g. The marginal cost when Q = 10.

$

Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $110,000.

Time spent working: hours

Time spent shirking: hours

When this same manager is given an annual, fixed salary of $110,000 and 5 percent of the firm’s profits—amounting to a total salary of $150,000 per year—the manager chooses to work 8 hours and shirks for 2 hours. Given this information, which of the compensation schemes does the manager prefer?

The manager is indifferent between the two payment schemes.

The scheme with fixed payment of $110,000 and a percentage of profits.

The scheme with only a fixed payment of $110,000.

Suppose the own price elasticity of market demand for retail gasoline is -0.7, the Rothschild index is 0.3, and a typical gasoline retailer enjoys sales of $2,500,000 annually. What is the price elasticity of demand for a representative gasoline retailer’s product?

Instruction: Round your answer to 2 decimal places.

Last month you assumed the position of manager for a large car dealership. The distinguishing feature of this dealership is its “no hassle” pricing strategy; prices (usually well below the sticker price) are posted on the windows, and your sales staff has a reputation for not negotiating with customers. Last year, your company spent $4 million on advertisements to inform customers about its “no hassle” policy, and had overall sales revenue of $30 million. A recent study from an agency on Madison Avenue indicates that, for each 8 percent increase in TV advertising expenditures, a car dealer can expect to sell 3 percent more cars—but that it would take a 2 percent decrease in price to generate the same 3 percent increase in units sold.

Assuming the information from Madison Avenue is correct, should you increase or decrease your firm’s level of advertising?

The firm should increase advertising.

The firm should decrease advertising.

The firm should not change advertising.

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