Managerial Economics

Questions
1. Southwest airlines begins a “Bags Fly Free” campaign, charging no fees for a first and second checked bag. Does this situation best represent producer-producer rivalry, consumer-consumer rivalry or consumer-producer rivalry? Explain
2. What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each five years if the opportunity cost of using funds is 8 percent?
3. Suppose that the total benefit and total cost from a continuous activity are respectively given by the following equations: B(Q)=76+24Q-2Q2 and C(Q)=60+6Q [note: MB(Q)=24-4Q and MC (Q)=6]
a.       Write out the equations for the net benefits
b.       What are the net benefits when Q=2? And Q =4?
c.       Write out the equations for the marginal net benefits
d.    What are the marginal benefits when Q=2 and Q=4?
e.     What level of Q maximizes net benefits?
f.       At the value of Q that maximizes net benefits, what is the value of marginal net benefits?
1     4 A firms current profits are $400,000. These profits are expected to grow indefinitely at a constant annual rate of 4%. If the firms’ opportunity cost of funds is 6%. Determine the value of the firm
a.       The instant before it pays out current profits and dividends
b.       The instant after it pays out current profits and dividends
5.   What is the value of a preferred stock that pays a perpetual divided of $125 at the ends of each year when the interest rate is 5%

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