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The manager of All City Realtors

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1.;The manager of All City Realtors wants to hire some real estate agents to;specialize in selling housing units acquired by the Resolution Trust Corporation (RTC) in;its attempt to bail out the savings and loan industry. The commission paid by the RTC to;the company to sell these homes is a flat rate of $2,000 per unit sold, rather than the;customary commission that is based on the sale price of a home. The manager estimates;the following marginal product schedule for real estate agents dealing in governmentowned housing;Number of real;estate agents;1;2;3;4;5;6;Marginal product (MP);(number of additional;units sold per year);20;17;15;12;8;4;Marginal;revenue product (MRP);a.;Construct the marginal revenue product (MRP) schedule by filling in the blanks in;the table.;b.;If the manager of All City Realtors must pay a wage rate of $32,000 per year to;get agents who will specialize in selling RTC housing, how many agents should;the manager hire? Why?;c.;If the wage rate falls to $18,000 per year, how many agents should the manager;hire?;d.;Suppose the RTC raises its commission to $3,000 per unit sold. Now what is the;marginal revenue product for each real estate agent employed?;2.;EverKleen Pool Services provides weekly swimming pool maintenance in;Atlanta. Dozens of firms provide this service. The service is standardized, each company;cleans the pool and maintains the proper levels of chemicals in the water. The service is;typically sold as a four- month summer contract. The market price for the four-month service contract is $115. EverKleen Pool Services has fixed costs of $3,500. The manager of;EverKleen has estimated the following marginal cost function for EverKleen, using data;for the last two years;SMC = 125 0.42Q + 0.0021Q2;where SMC is measured in dollars and Q is the number of pools serviced each summer.;a.;Given the estimated marginal cost function, what is the average variable cost;function for EverKleen?;b.;Should the manager of EverKleen continue to operate, or should the firm shut;down? Explain.;c.;The manager of EverKleen finds two output levels that appear to be optimal (i.e.;solutions of a quadratic function). What are these levels of output and which one;is actually optimal?;d.;Given the optimal output in c, how much profit (or loss) can the manager of;EverKleen Pool Services expect to earn?;3.;QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival;movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex;Cinema possesses a degree of market power. Despite having market power, QuadPlex;Cinema is currently suffering losses. In a conversation with the owners of QuadPlex, the;manager of the movie theater made the following suggestions: Since QuadPlex is a local;monopoly, we should just increase ticket prices until we make enough profit.;a.;Comment on this strategy. Will it work?;b.;How might the market power of QuadPlex Cinema be measured?;c.;What options should QuadPlex consider in the long run?;4.;The El Dorado Star is the only newspaper in El Dorado, New Mexico. Certainly;the Star competes with The Wall Street Journal, USA Today, and the New York Times;for national news reporting, but the Star offers readers stories of local interest, such as;local news, weather, high- school sporting events, and so on. The El Dorado Star faces;the demand and cost schedules shown in the spreadsheet that follows;Number of;newspapers per day;(Q);0;1,000;2,000;3,000;4,000;5,000;6,000;7,000;8,000;9,000;Total Revenue;per day;$(TR);0;1,500;2,500;3,000;3,250;3,450;3,625;3,725;3,625;3,475;Total cost;per day;$(TC);2,000;2,100;2,200;2,360;2,520;2,700;2,890;3,090;3,310;3,550;a. How many papers should be sold daily to maximize profit?;b. What is the maximum profit the El Dorado Star can earn?;c. What is the total fixed cost for the El Dorado Star? If the total fixed cost increases to;$5,000, how many papers should be sold daily for profit maximization?;5. Suppose that a monopoly faces inverse market demand function as;P = 1002Q;and its marginal cost function is;MC = 40 2Q.;Please answer the following two questions;a. What should be the monopolys profit-maximizing output?;b. What is the monopolys price?;6.;Suppose the two rival office supply companies Office Depot and Staples both adopt;price matching policies. If consumers can find lower advertised prices on any items;they sell, then Office Depot and Staples guarantee they will match the lower prices.;Explain why this pricing policy may not be good news for consumers.;7.;Recently one of the nations largest consumer electronics retailers began a;nationwide television advertising campaign kicking off its Take It Home Today;program, which is designed to encourage electronics consumers to buy today rather than;continue postponing a purchase hoping for a lower price. For example, the Take It;Home Today promotion guarantees buyers of new plasma TVs that they are entitled to;get any sale price the company might offer for the next 30 days.;a. Do you think such a policy will increase demand for electronic appliances? Explain.;b. What other reason could explain why this program is offered? Would you expect the;other large electronics stores to match this program with one of their own? Why or why;not?;8.;Suppose that Nike and Adidas are the only sellers of athletic footwear in the;United States. They are deciding how much to charge for similar shoes. The two choices;are Low and High. The payoff (profit as million) 2X2 matrix is as follows;Low;$1.0;High;Nike;Low;$0.8;Adidas;$ 0.5;$0.6;High;$1.7;$1.2;$ 0.3;$ 0.7;a. Is there a dominant strategy for Nike? Is there a dominant strategy for Adidas?;If Nike is the price leader and the first mover, what will be the Nash equilibrium in the game?

 

Paper#29647 | Written in 18-Jul-2015

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