Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 17, Problem 17.3IP
To determine
The difference-in-difference method.
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The residential division of Prism’s high-speed Internet service uses one advertising agency, while its commercial division uses another. Two analysts, Andy and Brad, are asked to test and evaluate the effectiveness of the two agencies. Andy proposes an A/B test that compares the click-through rates per ad for the two agencies. Brad proposes a difference-in-dif-ference test in which the budgets for both agencies are increased by 50%, and the percent change in click-through rates is compared.
What might be the sources of selection bias for the two proposals?
Which is likely to be smaller?
To test the effectiveness of a two Web advertising agencies, you increase your ad purchase with agency A by 50% without changing your purchase through agency B. The referrals to your website from agency A increased by only 34% but the referrals from agency B fell by 21%. Why might the difference-in-difference estimate of the referrals per dollar through agency A be biased?
A new tropical fruit juice product was entering the marketplace. The director of marketing for the company would like to know which advantage should be emphasized in advertisements, and which advertisement is better for sales. Nine cities with similar demographics are chosen, and a different combination of Media and Marketing Strategy is tried. The unit sales of tropical fruit juice for the eight weeks are shown in the two-way table below.
Media
Marketing strategy
Convenience
Quality
Price
Television
492, 630, 559, 447,
480, 624, 547, 444
464, 559, 759, 558,
528, 670, 534, 657
678, 628, 591, 633,
684, 761, 691, 549
Social Media
464, 559, 759, 558,
528, 670, 534, 657
710, 650, 705, 653,
577, 837, 629, 799
705, 585, 527, 499,
515, 566, 710, 547
Newspaper
690, 650, 705, 653,
577, 825, 629, 799
577, 616, 708, 486,
480, 652, 585, 538
803, 583, 825, 597,
813, 564, 708, 615
At the 0.05 level of significance,
is there an interaction…
Chapter 17 Solutions
Managerial Economics: A Problem Solving Approach
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- There is a Jexaco gas station right across the street from a Jalero station in Pennsylvania It is safe to assume that they compete locally for the same consumers and can observe the prices posted on each other's marquees. Demand for gasoline in this local market is Q = 80 − 6P, and both stations obtain gasoline from their supplier at $2.20 per gallon. On the day that both franchises opened for business, each owner was observed changing the price of gas advertised on its marquee more than 10 times; the owner of Jexaco lowered its price to slightly undercut Jalero's price, and the owner of Jalero lowered its price to beat Jexaco's. Since then, prices appear to have stabilized. Which of the oligopoly models is most suitable for explaining this behavior by these firms? Under current conditions, how many gallons of gasoline are sold in the market, and at what price? Would your answer differ if Jalero had service attendants available to fill consumers' tanks but Jexaco was only a…arrow_forwardCity Condos Construction, CCC, obtained a loan to purchase city land for a premium condominium building. CCC paid a real estate analyst $100,000 to write a report on the market. The report stated-and CCC believes- that each condo will sell for $5 million and they will build 10 condos on each building floor. The city's condo market is competitive but limits condo towers to 6 floors only. Construction costs rise with the number of floors built. The construction costs are $5 million (or $5m) to build one floor, $20m for two floors, $45m for 3 floors, $80m for four floors, $125m for five floors, and $180m for six floors. (Notice these values are not per floor costs.) In addition to these costs, CCC pays $1m per year in interest on its loan which it cannot avoid and will pay overhead costs for construction of $5m per year which are incurred only when construction occurs. МС, АC, MR MC AC MR a $10 Condo Floors Given the cost and revenue information above, the numeric values for CCC's cost…arrow_forwardExercise 6.5 Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs. a) Suppose that this market is a Stackelberg oligopoly and that company 1 is the first to decide how many punctures to repair each day. How many punctures a day will each company repair? What will be the market price of repairing a puncture? How much profit will each company make per day? b) Suppose now that the two firms, instead of competing in quantities, compete on prices according to Bertrand's model. Determine what the…arrow_forward
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