Dr. C. Chenecon - Managerial Economics Homework 2 Covers Ch.

Dr C Chenecon 3305 Managerial Economicshomework 2covers Ch 47 For

Dr. C. Chen ECON 3305 Managerial Economics Homework 2 Covers CH. 4~7. For each question, please show the necessary derivation (if applicable) and highlight the answer. Limit your answers within 5 pages. No cover sheet is required.

Question 1 (Chapter 4): The director of marketing at Vanguard Corporation believes that sales of its Bright Side laundry detergent (S) depend on Vanguard’s advertising expenditure (A) and the combined advertising expenditures of its three largest competitors (R). A regression analysis on 36 weekly observations produces an equation: S = a + bA + cR, and the following output:

• R-squared: 0.0150
• F-ratio: [value missing]
• Number of observations: 36
• Parameter estimates:

Questions:

1. a. Does Vanguard’s advertising expenditure have a statistically significant effect on sales? Explain using the p-value.
2. b. Does the rivals’ advertising significantly affect sales? Explain using the p-value.
3. c. What proportion of total variation in sales remains unexplained? Additionally, what other explanatory variables could be added?
4. d. What is the expected weekly sales when Vanguard spends $20,000 and rivals spend $300,000?

Question 2 (Chapter 5):

Bridget consumes only wine and cheese. Her current consumption is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and cheese is $4 per pound. The last bottle of wine adds 50 utility units; the last pound of cheese adds 40 utility units.

1. a. Is she maximizing utility? Why or why not?
2. b. If not, what should she do to maximize utility?

Question 3 (Chapter 5):

Bill has a daily carbohydrate limit of 167 grams and consumes rice Krispies, cottage cheese, and popcorn with the following marginal utilities per cup and carbohydrate contents:

Questions:

1. a. How many cups of each will he consume daily at 167 grams of carbs? Show your work.
2. b. If his intake is further restricted to 126 grams, what is his optimal consumption? Show your work.

Question 4 (Chapter 5):

Interpret the following consumer statements using consumer theory principles:

1. a. "I think you get more for your money from Nike than from Reebok."
2. b. "I wanted to buy a Boxster rather than a Malibu, but it just wasn’t worth it."
3. c. "I’d like to go to Mexico over spring break, but I just can’t afford it," says Don. Jill asks, "Don’t you have enough money in your account?" Don replies, "Yeah, but I can't afford to go."
4. d. "I’ll have to flip a coin to decide whether to buy chocolate chip or vanilla fudge ice cream."

Question 5 (Chapter 6):

Assuming demand for cosmetic or plastic surgery is price inelastic, determine whether each statement is true or false, and explain:

1. a. When the price increases, the number of surgeries decreases.
2. b. The percentage change in price is less than the percentage change in quantity demanded.
3. c. Changes in price do not affect the number of operations.
4. d. Quantity demanded is highly responsive to price changes.

Question 6 (Chapter 6):

The price elasticity of demand for imported whiskey is estimated to be -0.20 over a broad price range. The government raises tariffs, causing the price to increase by 20%.

1. a. Will demand increase or decrease? By what percentage?
2. b. What is the percentage change in total revenue after the tariff?

Question 7 (Chapter 7):

Wilpen Company, a major producer of tennis balls, estimates demand with:

Q = a + bP + cM + dPR, where Q = demand, P = price, M = income, and PR = racket price. The regression output is:

Questions:

1. a. Assess the significance of coefficients b, c, and d based on p-values. Comment on demand elasticity regarding tennis rackets.
2. b. If the wholesale price is $1.65, average income is $24,600, and the average racket price is $110, what is the estimated demand for tennis balls?
3. c. Calculate the elasticities of demand: price elasticity, income elasticity, and cross-price elasticity, at the given values.
4. d. If household income increases by 20%, what is the percentage change in demand?
5. e. If the rackets’ price increases by 25%, what is the effect on demand?

References

• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W. W. Norton & Company.
• Pindyck, R. S., & Rubinfeld, D. L. (2017). Microeconomics (9th ed.). Pearson.
• Harrison, M., & Rutner, S. (2014). Managerial Economics. McGraw-Hill Education.
• Frank, R. H., & Bernanke, B. S. (2015). Principles of Economics (6th ed.). McGraw-Hill.
• Mankiw, N. G. (2020). Principles of Economics (8th ed.). Cengage Learning.
• Perloff, J. M. (2019). Microeconomics: Theory and Applications with Calculus. Pearson.
• Begg, D., et al. (2014). Economics. McGraw-Hill Education.
• Gordon, R. J. (2016). Macroeconomics (4th ed.). Pearson.
• Krugman, P., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.
• Dornbusch, R., et al. (2014). Macroeconomics. McGraw-Hill Education.