AS A BUDDING ENTREPRENEUR YOU HAVE PURCHASED A SMALL BAGEL SHOP. YOU HAVE ENGAGED IN A MARKET STUDY TO CATEGORIZE YOUR CUSTOMERS
Question Please answer the following short answer questions (5 pts each): 18. As a budding entrepreneur you have purchased a small bagel shop. You have engaged in a market study to categorize your customers? willingness to pay for a meal(coffee+bagel) into 8 equal sized groups: ($5.00 $4.50 $4.00 $3.50 $3.00 $2.50$2.00 $1.50). All of your costs are fixed except labor and materials which cost $2.25 per meal sold. a. What price should you charge for a meal? Does your answer depend on the totalnumber of consumers? b. Suppose your market research tells you that the four lowest value groups are allstudents. Should you offer a student discount? If so how much? 19. Concert price have increased coincidentally with illegal downloading of music offthe internet. What is the causal link? 20. VetPharm has historically produced and sold drugs for animals; however one of itsproducts developed for animal use has recently been approved for a similar use inhumans. Market research has revealed that that at the current per dose price theelasticity of demand on the part of animal owners is -2.0. The research also estimates that at this price the elasticity of demand for human use would be -.2. The current priceis $5.00 per dose. If the MC of production is $1 what should the company do? a. reduce animal price; reduce human price. b. raise animal price; raise human price. c. reduce animal price; raise human price. d. raise animal price; reduce human price. 21. Ivan loves classical music and his favorite composer wrote ninesymphonies. Ivan just happens to the 9 symphonies in exactly the order inwhich they were written. The table below shows the values that Ivan places on having these symphonies which he does not currently yet own: Rank Total Personal Value 1_______________19 2_______________36 3_______________51 4_______________64 5_______________75 6_______________84 7_______________91 8_______________96 9_______________99 You can interpretthe above to mean for example that Ivan values her favorite Symphony at $19 and thatthe total value of the first Symphony plus Symphony # 2 (his second favorite) is $36etc. If the symphonies were sold individually on CDs – one symphony per disc – and theprice per CD was $10.00 how many CDs would he buy? 22. Referring to the question above: If the symphonies were also offered as a completeset of 9 CDs and the price of the entire set was $79.00 would he rather buy theindividual CDs or the box set? HINT: WHICH OPTION GIVES HIM MORECONSUMER SURPLUS? 34. The following represents the potential outcomes of your first salary negotiation aftergraduation: Employer Assuming this is a sequential move game with the employer moving first circle themost likely outcome. Does the ability to move first give the employer an advantage? Ifso how? As the employee is there anything you could do to realize a higher payoff? 35. You areconsideringlaunching a strategicalliance with acompetitor to joinyour separate skills todevelop a new jointlyowned technology.Both you and yourpartner have theoption of fully orpartially supporting the alliance. Complete the payoffdiagram to make thisa Prisoner?sDilemma. You fullysupport alliancePartner fully supports alliancePartner partiallysupports alliance 37. Suppose that you are a seller bargaining with a buyer. Your bottom line is zero andyou think the buyer’s top dollar is either $5 with probability .25 or $6 with probability . 75. Suppose further that you can commit to a posted price. What is the price thatmaximizes expected profitability? 39. You take a position with a large real estate development company as your first jobafter graduation. Your first big assignment is to sell an office building ? you have beeninformed the company?s cost into the building (and the bottom line price it is willing toaccept) is $400000. You have identified a likely buyer and you assess that his top priceis either $500000 with a probability of .3 $600000 with a probability of .5 or$1000000 with a probability of .2. You have to commit to a posted price ? what pricewill maximize your profitability? 40. You start an insurance company as your first entrepreneurial venture aftergraduation. Your main product line is malpractice insurance for dentists. Afterexhaustive research you learn that settling malpractice claims against careful dentistscosts $2000 and settling malpractice claims against reckless dentists costs $7500. Individual dentists know whether they are reckless or careful and your research showsthat approximately 20% of dentists are reckless. How much do should you charge formalpractice insurance to break even?
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