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 7, Problem 7.5IP
To determine
The break-even
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Imagine that you own one of several popular restaurants in your area. Due to the Covid Pandemic of 2020, all restaurants were forced to close down for two months. You are now allowed to reopen your restaurant to the public. During this time, labor costs were reduced however, overhead such as rent, electricity, etc. was still a large percentage of your total costs. You are facing a dilemma; you are short on funds.
What options should you consider? For example, should you raise menu prices to make up for the lost revenue? Should you lower menu prices to attract more customers? Is your customer volume elastic? If you raise prices and the customer volume falls will the increase in prices compensate for the loss of volume? If it does not, is there some way you can make up the revenue shortfall? If you lower menu prices and revenue falls is there some way you can increase your business revenue?
Explain your reasoning in terms of demand and elasticity.
You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not. Single line text.
Company ZAP operates in car industry. When
ZAP operates at full capacity (10.000
cars/month), economies of scale is reached,
and cost/car is minimum. However, due to an
economic crisis, the sales of ZAP decreased
to 6.000 cars/month. Economic forecasts
show that the crises will continue for 2-3
years more.
a) As the manager of ZAP what would you
do to adjust scale? Why?
b) After 3 years if the demand for your cars
starts to increase how would you react?
Explain.
Chapter 7 Solutions
Managerial Economics: A Problem Solving Approach
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