MANAGERIAL ECONOMICS
5th Edition
ISBN: 9781337106658
Author: FROEB
Publisher: CENGAGE L
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Chapter 20, Problem 4MC
To determine
Moral hazard problem.
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If you are willing to pay up to $8 for your first cup of coffee the blank of your first cup of coffee is $8
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(Figure: Good Y and Good X) Suppose the budget constraint shifted from constraint 2 to constraint 1. What could have caused this change?
Quantity of
good Y
18
16
14
Budget constraint 2
12-
10
8
Budget constraint 1
6
4
2
0
2 4 6 8 10 12 14 16 18 20 Quantity of good X
an increase in income and an decrease in the price of good X relative to that of good Y
a decrease in income
an decrease in the price of good X and no change in the price of Y
a decrease in income and an increase in the price of good X relative to that of good Y
an increase in income
a decrease in the price of good X relative to that of good Y
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- 1. Child Care That Cares A group of your friends got together and decided to start a childcare business in their town. The town currently has three other childcare centers. The clients are mostly the children of working parents. Your friends realize that they are going to enter a market that already has competition and that they will have to compete for the same customers. Their goal is to attract as many customers as possible, keep their prices within reach, be different, and at the same time make profits in the long run. Your friends approached you to ask you the following questions to help them make the best business decision: If we provide a bit different services than the competition, such as longer hours, healthy lunch, and smaller staff to children ratio, do you think we can charge significantly higher prices than our competition? Explain why. Given that we have competition, what do we need to do to make our business profitable? How can we determine whether we are making…arrow_forward2. Truck or Train? They both move, right? Your uncle and aunt operate a food truck near a busy train station. Their primary customers are commuters who work in another town. They told you that it costs them about $1,000 daily to run the food truck from 7:00 a.m. until 5:00 p.m. (on average $100 per hour). They average $1,500 in revenue per day. They want to make more money, and they have the idea of extending their hours until 9:00 p.m. daily. They want your opinion, so they ask you the following questions: If we extend our hours from 5:00 p.m. to either 7:00 pm or 9:00 p.m., how do we know it’s worth it? How do we know that it is beneficial to close later knowing that every additional hour of operation costs us $100? Do you think it is a good idea to raise our prices to increase our revenues? How do we know if raising prices is beneficial to us? What should we do if our costs exceed our revenues over time? Should we stay in business or shut down? Why?arrow_forwardNAFTA (North American Free Trade Agreement) is an agreement that does what? Allows the free migration of people between countries in North America Limits tariffs and trade restrictions Ensures that all countries have strong environmental and workers rights regulations All of the abovearrow_forward
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