Answered: A manager of a clothing firm is…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 7.5IP

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Please answer 12,13,14. Thank you!.

12. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production. The manager would compare

Group of answer choices

a. The incremental benefit expected from the second factory to the cost of the second factory

b. The total benefits gained from the two factories to the incremental costs of running the two factories

c. The incremental benefit expected from the second factory to the total costs of running the two factories

d. The total benefits gained from the two factories to the total costs of running the two factories

13. Acme’s best-selling product sells for $50. Its sales and marketing team is trying to decide how to price the product for next year in order to achieve the maximum total revenue from the product, all marketing effects being the same in both years. After some research it determines that its price elasticity is 0.75 at the reasonable price range around its current price. In this situation, Acme should

Group of answer choices

a. Raise prices

b. Match its nearest competitor’s price

c. Reduce prices

d. Keep prices the same

14. Suppose an investment project has an NPV of $75 million if it becomes successful and an NPV of –$25 million if it is a failure. What is the minimum probability of success above which you should make the investment?

Group of answer choices

a. 0.50

b. 0.25

c. 0.33

d. 0.10

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