Nash Equliibrium Elasticity Opportunity Cost

Managerial Economics The concept of opportunity cost reflects that when an asset is used, that asset cannot be used for something else. So if she chooses to buy a new car, the resources used to make that purchase cannot be utilized anywhere else. This is particularly important when resources are scarce. In her case, she needs to think about what the decision is.

Is the choice between a new car and a used one? Is it a choice between living in an outer suburb with lower rent and a new car, or a hip inner city neighborhood with higher rent and no new car? A new car usually represents some sort of trade-off, and Stella needs to think about what those trade-offs are before committing to this purchase.

The table of total costs is as follows: Method Drivers Cost Machines Cost Total Cost Driver cost Machine cost This shows that the method with the lowest total cost is method #2. From an organizational architecture point-of-view, the problems at Enron were created by a couple of factors. One was that there were few checks and balances on senior executive behavior -- from a structural point-of-view they had free reign, and they should not have.

Another issue was with the organizational culture, which encouraged a very high level of competition, where only profits and winning were rewarded, and there were no meaningful punishments for committing fraud or other illegal acts in or to attain victory (Langevoort, 2002). 4. For utility companies, executives should not make output and pricing decisions based on short-run fixed costs. There are a couple of reasons for this. One, there is a high cost to the infrastructure that utilities use -- I'm not sure these costs are short-run.

But let's say that they are. There are high costs associated with exiting the business. These high exit costs mean that even if the company has to lose money in the short-run, the long-run strategy says that it is cheaper to lose a little money in the short run, because the cost of exiting and re-entering the business is greater than the losses that these companies will incur. As long as the company is covering its variable costs, it should remain in business.

Thus it is the variable costs that should dictate output and pricing decisions, not short-run fixed costs (BIS, 2015). 5. A firm that is in an oligopoly market is Microsoft, with Windows. This product is one of only two or maybe three operating systems that people use for personal computers. Windows has a market share over 90% in the U.S. Mac OS has a market share of 8% and Linus just 1.5% (Net Marketshare.com, 2015).

This meets the criteria for an oligopoly easily, as for most consumers there are really only two viable options (most people aren't going to deal with Linux). 6.a) To increase the sales of glazed doughnuts, the price of the doughnuts will need to decrease by 20%. So 30/1.5 = 20.

b) To determine whether this move would be profitable, you can run the numbers: Current $1.00 10 $10.00 Proposed $0.80 13 $10.40 But you know that you will make more money with this strategy because the price elasticity of demand is over 1.0, which means sales will increase at a greater rate than the price change. c) The cross-price elasticity means that changes in the price of Krispy Kreme doughnuts will influence the demand for Dunkin Donuts by 1.2. If Krispy Kreme lowers its price by 20%, this will result in a reduction of demand for Dunkin Donuts by (20*1.2) = 24%.

Thus, the demand for Dunkin Donuts will be reduced by 24% with this change in the price at Krispy Kreme. d) If Dunkin raises its prices by 15% on coffee, then the demand for its doughnuts will decrease by 0.5 * 15 = 7.5%. Doughnut demand will fall by 7.5% with a 15% increase in the price of French Vanilla coffee. e) If incomes increase by 5%, which will result in a decline in demand for Dunkin Donuts of (-0.5)*5 = -2.5%. Thus demand for Dunkin doughnuts will fall by 2.5% if incomes increase by 5%.

This means that DD glazed doughnuts are in inferior good, because demand falls when incomes increase. 7a) The strategy that offers both firms the best outcome is the high/high strategy. This creates a total wealth of $20 million, evenly split. For each company individually, however, there is the possibility of a superior outcome. b) Neither firm has a dominant strategy. When they price the.