Solution Manual for Managerial Econo
U U U U
mics and Business Strategy 10th Micha
U U U U U
el Baye, Jeff Prince U U U
COMPLETE SOLUTION MANUAL FOR
U U U
Managerial Economics and Business Strategy 10th Edition
U U U U U U U
By Michael Baye, Jeff Prince
U U U U
Chapter 1 U
The Fundamentals of Managerial Economics Ans
U U U U U
wers to Questions and Problems
U U U U
1. ThisUsituationUbestUrepresentsUproducer-
producerUrivalry.U Here,USouthwestUisUaUproducerUattemptingUtoUstealUcustomersUa
wayUfromUotherUproducersUinUtheUformUofUlowerUprices.
2. TheUmaximumUyouUwouldUbeUwillingUtoUpayUforUthisUassetUisUtheUpresentUvalu
e,UwhichUis
3.
a. NetUbenefitsUareUN(Q)U=U20U+U24QU–U4Q2.
b. NetUbenefitsUwhenUQU=U1UareUN(1)U=U20U+U24U–
U4U=U40UandUwhenUQU=U5UtheyUareUN(5)U=U20U+U24(5)U–U4(5) U=U40.
2
c. MarginalUnetUbenefitsUareUMNB(Q)U=U24U–U8Q.
d. MarginalUnetUbenefitsUwhenUQU 1UareUMNB(1)U=U24U–U8(1)U=U16UandUwhenUQ 5
theyUareUMNB(5)U=U24U–U8(5)U=U-16.
e. SettingUMNB(Q)U=U24U–
U8QU=U0UandUsolvingUforUQ,UweUseeUthatUnet UbenefitsUareUmaximizedUwhenUQU
=U3.
PageU1
, f. WhenUnetUbenefitsUareUmaximizedUatUQU=U3,UmarginalUnetUbenefitsUareUzero.UThatUi
s,UMNB(3)U=U24U–U8(3)U=U0.
4.
a. TheUvalueUofUtheUfirmUbeforeUitUpaysUoutUcurrentUdividendsUis
.
b. TheUvalueUofUtheUfirmUimmediatelyUafterUpayingUtheUdividendUis
ManagerialUEconomicsUandUBusinessUStrategy,U10e
CopyrightU©U2022UbyUMcGraw-HillUEducation.
AllUrightsUreserved.UNoUreproductionUorUdistributionUwithoutUtheUpriorUwrittenUconsentUofUMcGrawUHillUEducation.
.
5. TheUpresentUvalueUofUtheUperpetualUstreamUofUcashUflows.UThisUisUgivenUby
6. TheUcompletedUtableUlooksUlikeUthis:
ControlU TotalUBenef NetUBe Marginal
Total Marginal MarginalU
UNetUBen
Variable itsUB(Q) UCost nefitsUN UBenefit CostUMC(
efitUMNB
UQ UC(Q (Q) UMB(Q) Q)
(Q)
)
100 1200 950 250 210 60 150
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
104 1940 1290 650 170 100 70
105 2100 1400 700 160 110 50
106 2250 1520 730 150 120 30
107 2390 1650 740 140 130 10
108 2520 1790 730 130 140 -10
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
PageU2 MichaelUR.UBayeU&UJeffreyUT.UPrinc
e
, a. NetUbenefitsUareUmaximizedUatUQU=U107.
b. MarginalUcostUisUslightlyUsmallerUthanUmarginalUbenefitU(MCU=U130UandUMBU=U140
).UThisUisUdueUtoUtheUdiscreteUnatureUofUtheUcontrolUvariable.
7.
a. TheUnetUpresentUvalueUofUattendingUschoolUisUtheUpresentUvalueUofUtheUbenefitsUder
ivedUfromUattendingUschoolU(includingUtheUstreamUofUhigherUearningsUandUtheUval
ueUtoUyouUofUtheUworkUenvironmentUandUprestigeUthatUyourUeducationUprovides),U
minusUtheUopportunityUcostUofUattendingUschool.UAsUnotedUinUtheUtext,UtheUopport
unityUcostUofUattendingUschoolUisUgenerallyUgreaterUthanUtheUcostUofUbooksUandUtui
tion.UItUisUrationalUforUanUindividualUtoUenrollUinUgraduateUschoolUwhenUhisUorUherU
netUpresentUvalueUisUgreaterUthanUzero.
b. SinceUthisUdecreasesUtheUopportunityUcostUofUgettingUanUM.B.A.,UoneUwouldUexpe
ctUmoreUstudentsUtoUapplyUforUadmissionUintoUM.B.A.UPrograms.
8.
a. HerUaccountingUprofitsUareU$170,000.UTheseUareUcomputedUasUtheUdifferenc
eUbetweenUrevenuesU($200,000)UandUexplicitUcostsU($30,000).
b. ByUworkingUasUaUpainter,UJaynetUgivesUupUtheU$110,000UsheUcouldUhaveUearnedUu
nderUherUnextUbestUalternative.UThisUimplicitUcostUofU$110,000UisUinUadditionUtoUth
e
$30,000UinUexplicitUcosts.USinceUherUeconomicUcostsUareU$140,000,UherUeconomicU
profitsUareU$200,000U-U$140,000U=U$60,000.
9.
a. TotalUbenefitUwhenUQU=U2UisUB(2)U=U20(2)U–
U2*2 U=U32.UWhenUQU=U10,UB(10)U=U20(10)U–U2*10 U=U0.
2 2
b. MarginalUbenefitUwhenUQU=U2UisUMB(2)U=U20U–
U4(2)U=U12.UWhenUQU=U10,UitUisUMB(10)U=U20U–U4(10)U=U-20.
c. TheUlevelUofUQUthatUmaximizesUtotalUbenefitsUsatisfiesUMB(Q)U=U20U–U4QU=U0,UsoUQ
=U5.
d. TotalUcostUwhenUQU=U2UisUC(2)U=U4U+U2*22U=U12.U WhenUQU=U10UC(Q)U=U4U+U2*102
U=U204.
e. MarginalUcostUwhenUQU=U2UisUMC(Q)U=U4(2)U=U8.UWhenUQU=U10UMC(Q)U=U4(10)
U=U40.
f. TheUlevelUofUQUthatUminimizesUtotalUcostUisUMC(Q)U=U4QU=U0,UorUQU=U0.
g. NetUbenefitsUareUmaximizedUwhenUMNB(Q)U=UMB(Q)U-UMC(Q)U=U0,UorU20U–
U4QU–
U4QU=U0.U SomeUalgebraUleadsUtoUQU=U20/8U=U2.5UasUtheUlevel UofUoutput UthatUmaxi
mizesUnetUbenefits.
10.
a. TheUpresentUvalueUofUtheUstreamUofUaccountingUprofitsUis
ManagerialUEconomicsUandUBusinessUStrategy,U10 PageU3
e
, b. TheUpresentUvalueUofUtheUstreamUofUeconomicUprofitsUis
PageU4 MichaelUR.UBayeU&UJeffreyUT.UPrinc
e
U U U U
mics and Business Strategy 10th Micha
U U U U U
el Baye, Jeff Prince U U U
COMPLETE SOLUTION MANUAL FOR
U U U
Managerial Economics and Business Strategy 10th Edition
U U U U U U U
By Michael Baye, Jeff Prince
U U U U
Chapter 1 U
The Fundamentals of Managerial Economics Ans
U U U U U
wers to Questions and Problems
U U U U
1. ThisUsituationUbestUrepresentsUproducer-
producerUrivalry.U Here,USouthwestUisUaUproducerUattemptingUtoUstealUcustomersUa
wayUfromUotherUproducersUinUtheUformUofUlowerUprices.
2. TheUmaximumUyouUwouldUbeUwillingUtoUpayUforUthisUassetUisUtheUpresentUvalu
e,UwhichUis
3.
a. NetUbenefitsUareUN(Q)U=U20U+U24QU–U4Q2.
b. NetUbenefitsUwhenUQU=U1UareUN(1)U=U20U+U24U–
U4U=U40UandUwhenUQU=U5UtheyUareUN(5)U=U20U+U24(5)U–U4(5) U=U40.
2
c. MarginalUnetUbenefitsUareUMNB(Q)U=U24U–U8Q.
d. MarginalUnetUbenefitsUwhenUQU 1UareUMNB(1)U=U24U–U8(1)U=U16UandUwhenUQ 5
theyUareUMNB(5)U=U24U–U8(5)U=U-16.
e. SettingUMNB(Q)U=U24U–
U8QU=U0UandUsolvingUforUQ,UweUseeUthatUnet UbenefitsUareUmaximizedUwhenUQU
=U3.
PageU1
, f. WhenUnetUbenefitsUareUmaximizedUatUQU=U3,UmarginalUnetUbenefitsUareUzero.UThatUi
s,UMNB(3)U=U24U–U8(3)U=U0.
4.
a. TheUvalueUofUtheUfirmUbeforeUitUpaysUoutUcurrentUdividendsUis
.
b. TheUvalueUofUtheUfirmUimmediatelyUafterUpayingUtheUdividendUis
ManagerialUEconomicsUandUBusinessUStrategy,U10e
CopyrightU©U2022UbyUMcGraw-HillUEducation.
AllUrightsUreserved.UNoUreproductionUorUdistributionUwithoutUtheUpriorUwrittenUconsentUofUMcGrawUHillUEducation.
.
5. TheUpresentUvalueUofUtheUperpetualUstreamUofUcashUflows.UThisUisUgivenUby
6. TheUcompletedUtableUlooksUlikeUthis:
ControlU TotalUBenef NetUBe Marginal
Total Marginal MarginalU
UNetUBen
Variable itsUB(Q) UCost nefitsUN UBenefit CostUMC(
efitUMNB
UQ UC(Q (Q) UMB(Q) Q)
(Q)
)
100 1200 950 250 210 60 150
101 1400 1020 380 200 70 130
102 1590 1100 490 190 80 110
103 1770 1190 580 180 90 90
104 1940 1290 650 170 100 70
105 2100 1400 700 160 110 50
106 2250 1520 730 150 120 30
107 2390 1650 740 140 130 10
108 2520 1790 730 130 140 -10
109 2640 1940 700 120 150 -30
110 2750 2100 650 110 160 -50
PageU2 MichaelUR.UBayeU&UJeffreyUT.UPrinc
e
, a. NetUbenefitsUareUmaximizedUatUQU=U107.
b. MarginalUcostUisUslightlyUsmallerUthanUmarginalUbenefitU(MCU=U130UandUMBU=U140
).UThisUisUdueUtoUtheUdiscreteUnatureUofUtheUcontrolUvariable.
7.
a. TheUnetUpresentUvalueUofUattendingUschoolUisUtheUpresentUvalueUofUtheUbenefitsUder
ivedUfromUattendingUschoolU(includingUtheUstreamUofUhigherUearningsUandUtheUval
ueUtoUyouUofUtheUworkUenvironmentUandUprestigeUthatUyourUeducationUprovides),U
minusUtheUopportunityUcostUofUattendingUschool.UAsUnotedUinUtheUtext,UtheUopport
unityUcostUofUattendingUschoolUisUgenerallyUgreaterUthanUtheUcostUofUbooksUandUtui
tion.UItUisUrationalUforUanUindividualUtoUenrollUinUgraduateUschoolUwhenUhisUorUherU
netUpresentUvalueUisUgreaterUthanUzero.
b. SinceUthisUdecreasesUtheUopportunityUcostUofUgettingUanUM.B.A.,UoneUwouldUexpe
ctUmoreUstudentsUtoUapplyUforUadmissionUintoUM.B.A.UPrograms.
8.
a. HerUaccountingUprofitsUareU$170,000.UTheseUareUcomputedUasUtheUdifferenc
eUbetweenUrevenuesU($200,000)UandUexplicitUcostsU($30,000).
b. ByUworkingUasUaUpainter,UJaynetUgivesUupUtheU$110,000UsheUcouldUhaveUearnedUu
nderUherUnextUbestUalternative.UThisUimplicitUcostUofU$110,000UisUinUadditionUtoUth
e
$30,000UinUexplicitUcosts.USinceUherUeconomicUcostsUareU$140,000,UherUeconomicU
profitsUareU$200,000U-U$140,000U=U$60,000.
9.
a. TotalUbenefitUwhenUQU=U2UisUB(2)U=U20(2)U–
U2*2 U=U32.UWhenUQU=U10,UB(10)U=U20(10)U–U2*10 U=U0.
2 2
b. MarginalUbenefitUwhenUQU=U2UisUMB(2)U=U20U–
U4(2)U=U12.UWhenUQU=U10,UitUisUMB(10)U=U20U–U4(10)U=U-20.
c. TheUlevelUofUQUthatUmaximizesUtotalUbenefitsUsatisfiesUMB(Q)U=U20U–U4QU=U0,UsoUQ
=U5.
d. TotalUcostUwhenUQU=U2UisUC(2)U=U4U+U2*22U=U12.U WhenUQU=U10UC(Q)U=U4U+U2*102
U=U204.
e. MarginalUcostUwhenUQU=U2UisUMC(Q)U=U4(2)U=U8.UWhenUQU=U10UMC(Q)U=U4(10)
U=U40.
f. TheUlevelUofUQUthatUminimizesUtotalUcostUisUMC(Q)U=U4QU=U0,UorUQU=U0.
g. NetUbenefitsUareUmaximizedUwhenUMNB(Q)U=UMB(Q)U-UMC(Q)U=U0,UorU20U–
U4QU–
U4QU=U0.U SomeUalgebraUleadsUtoUQU=U20/8U=U2.5UasUtheUlevel UofUoutput UthatUmaxi
mizesUnetUbenefits.
10.
a. TheUpresentUvalueUofUtheUstreamUofUaccountingUprofitsUis
ManagerialUEconomicsUandUBusinessUStrategy,U10 PageU3
e
, b. TheUpresentUvalueUofUtheUstreamUofUeconomicUprofitsUis
PageU4 MichaelUR.UBayeU&UJeffreyUT.UPrinc
e
