MBA 5004

MBA 5004

Quiz # 1

Winter 2018

Name:____________________________

• Wolf Camera is a Michigan -based importer and distributor of high-end digital cameras used by professional photographers. Revenue and cost are as follows:

TR =  $1500Q – 1.1Q²    = PQ

TC = $45,500 +110Q  + 0.44Q²

1. Calculate output, marginal revenue, marginal cost, average cost, price, and profit at the average total cost-minimizing activity level. (Hint – MC passes through the minimum point on the ATC curve)
2. Calculate these values at the profit-maximizingactivity level.
3. Compare and discuss your answers to parts A and B.

2)   The Charleston Country Club (CCC) is a private, not-for-profit golf club located in Charleston; SC.  Currently, CCC has 2,200 members but is planning on a membership drive to increase this number significantly.  An important issue facing Jean Murphy, CCC’s administrative director, is the determination of an appropriate membership level.  CCC’s Board of Directors has instructed MS. Murphy to maximize CCC’s operating surplus, defined as total revenues minus total costs so as to optimize the use of club resources.

Currently, CCC’s fixed costs are $3,000,000 per year. In addition, variable costs amount to $600Q + $.15Q^2. , where Q is the number of CCC members.  Members pay an annual fee of $1750.00, and on the average, spend another $900 per year on green fees.  The Board of Directors want to hold the fees at current levels regardless of membership numbers (Hint- MR = P = $1750 +$900).

1. How many additional members should Ms. Murphy recruit into the club in order to maximize surplus?

1. If the additional members can only be recruited by building a new swimming pool and tennis courts at a cost of $500,000/year, should the club build the new facilities? Explain and justify your answer.

• Given your analysis, what course of action  would you recommend to the Board of Directors

• Raspberries are a product of the Southern Growers’ Association. Producers in the area can switch back and forth between blackberry and raspberry production, depending on market conditions. Similarly, consumers tend to regard raspberries and blackberries as substitutes. As a result, the demand and supply of Raspberries is highly sensitive to changes in both raspberry  and blackberry prices. Demand and supply functions for Raspberries are as follows:

Q_D = 14500 − 25P + 12.5PB + 0.1Y                       (Demand)

Q_S = 1000 + 75P − 25PB − 12.5PL + 10R             (Supply)

where P is the average wholesale price of Raspberries  ($ per bushel), PB is the average wholesale price of Blackberries ($ per bushel), Y is income (GDP in $ millions), PL is the average price of unskilled labor ($ per hour), and R is the average annual rainfall (in inches). Both Q_D and Q_S are in millions of bushels of Blackberries.

1. When quantity is expressed as a function of price, what are the Raspberry demand and supply curves if PB = $4, Y = $15,000 million, PL = $8, and R = 20 inches?
2. Calculate the surplus or shortage of Raspberries when P = $1.50, $2, and $2.50.
3. Calculate the market equilibrium price-output combination.
4. D) Assume that the price of labor goes up to $9.00 /hr. and that national income decreases by $1.500 millions. What is the new equilibrium price and quantity for Blackberries?

4)  Giovanni’s Pasta Bar recently reduced appetizer prices from $12 to $10 for afternoon “early bird” customers and enjoyed a resulting increase in sales from 85 to 120 orders per day. Beverage sales also increased from 340 to 500 units per day.

1. Calculate the arc price elasticityof demand for appetizers.
2. Calculate the arc cross-priceelasticity of demand between beverage sales and appetizer prices.
3. Holding all else equal, would you expect an additional appetizer price decrease to cause both appetizer and beverage revenues to rise? Explain.