EBK MANAGERIAL ECONOMICS
4th Edition
ISBN: 9780100546622
Author: FROEB
Publisher: YUZU
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Chapter 2, Problem 2.5IP
Kraft and Cadbury
When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value rose, but Kraft’s market value fell by more. What does this tell you about the value-creating potential of the deal?
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(d) Calculate the total change in qı.
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(e) B₁ is our original budget constraint and B2 is our new budget constraint after the price of good 1 (p1) increased.
Decompose the change in qı (that occurred from the increase in p₁) into the income and substitution effects. It
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Substitution Effect:
Income Effect:
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