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Chapter 2
2. When the price of gasoline rises, the full cost of renting an SUV with the gas purchase
rises more than the full cost of more fuel efficient sub-compacts. Economically
minded renters start to prefer fuel-efficiency. To continue to rent the SUVs,
Enterprise Rental discounts the daily rental on these cars so that they don’t sit idle in
their parking lots.
8 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,
or posted to a publicly accessible website, in whole or in part.
4. Table A.4 (p. A-8) shows Disney’s eight year annuity at a 9% discount rate is worth
5.5348 per dollar, so $6,088,280. Fox’s offer was worth $3,193,961, assuming again a
9% discount rate. CBS’s offer was worth $2,790,230, assuming again a 9% discount rate.
5. This question examines expected values, standard deviations, and risk measures for
MICHTEC’s products with probabilities of .2, .5, and .3 for boom, recession, and
normal growth.
6. Comparing two projects, Project B appears riskier because it has a larger standard
deviation ($125,000) than Project A, but that does not consider relative risk.
Actually, Project A is riskier because it has a larger coefficient of variation than
Project B does.
CVA = vA = $40,000/$50,000 = 0.80
CVB = vB = $125,000/$250,000 = 0.50
Because the two projects are significantly different in size, the coefficient of
variation (a relative measure of risk) is more appropriate.
a. Because the price distribution is normal, the expected price is halfway between
the most optimistic price and the most pessimistic price, or $1.5 million.
9
Managerial Economics Applications Strategies and Tactics 13th Edition McGuigan Solutions Man
b. From Table 1, the z value corresponding to leaving 10 percent in the lower tail
of a normal distribution is approximately 1.28. Therefore, 1.28 standard
deviations correspond to a distance of $500,000 below the mean ($1 million
minus $1.5 million). Hence one standard deviation is equal to:
1.28 = -$500,000, or = $390,625.
2. Trucking, health care, and hotel stays are all services. Because so much of health care
is paid for by third parties (HMOs, BlueCross, or Medicare), pricing is often obscure
to the patients so that giving a discount for a hernia surgery on Tuesdays makes little
sense. Trucking, on the other hand, is primarily Business to Business and faces a
great deal of competitive buying power (after deregulation of the trucking industry in
July 1980 with the Motor Carrier Regulatory Reform and Modernization Act reduced
the power of the Interstate Commerce Commission to set trucking rates). A firm that
does significant shipping will search extensively to find the lowest price. In this
environment, competitive rates would tend to occur. But in hotel stays, we have
small buyers of services such a traveler to show the wide range of prices found in
hotels that we also find in airlines.
3. There is an art to finding out what a customer is willing to pay. The object of the
seller is to charge the most that the customer is willing to pay. If reservation clerks or
travel agents find that customers are willing to pay more for certain upgrades, they
will allocate fewer “cheap seats” and have more “preferred seating,” or so other
designation.
10 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,
or posted to a publicly accessible website, in whole or in part.
The “Musical Times” contains original Articles on the Art, in all its
branches, with Criticisms of important Works bearing upon it;
together with notices of the chief Musical Performances in London
and the Provinces. It especially advocates Popular Musical
Education. The rapidly increasing circulation of this Paper, in all parts
of the Kingdom, renders it an important advertising medium. A
composition of one of the celebrated old or modern masters is
presented Monthly to Subscribers (in advance) of Six Months. These
Compositions will consist of Organ Pieces, Madrigals, Glees, Songs,
&c.
Guaranteed Circulation 5,000 Copies.
Scale of Charges for Advertisements:—
1 Praise.
2 Psalm CVII.
3 The Cuckoo.
4 The Village Chimes.
5 Independence.
6 The Traveller.
7 God is everywhere.
8 Temperance.
PART II.
9 Invitation to a Redbreast.
10 Call to Prayer.
11 Stanzas to my Child.
12 Infant’s Prayer.
13 Blowing Bubbles.
14 Super Flumina Babylonis.
15 Prayer.
16 Shepherd Boy.
PART III.
17 The Sea.
18 Contentment.
19 Fraternity.
20 Night Song.
21 Consolation.
22 Hymn.
23 The World we have not seen.
24 Psalm XV.
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