Question

Suppose you were asked to manage a golf course that was currently charging a uniform price. Would you suggest that the course continue with this price plan or switch to a two-part pricing plan? Explain your decision and how you would choose the optimal price.

Answer #1

The aged but cenrally located golf course you manage does not
have a in-ground automated water sprinkling system. Instead, to
properly water the course, sprinklers and hoses must be repeatedly
set, moved, and put away by some of the grounds crew a tedious and
laborious task. If over the next 12 years, you project annual
savings of about $40,000 from having an automated system, what is
the maximum price you would be willing to pay today for an
installed, automated...

You are the manager of a golf course. A typical member’s inverse
demand function for weekly visits (Q) is known to you and is given
as P = 100 – 20Q, where P is the fee charged for each visit. Your
cost function is C = 20Q.
i. If you operate your business as a single price monopolist,
what fee you will charge for each visit and what profit you will
earn?
ii. Acting as a single-price monopolist (as above),...

You are the manager of a golf course. A typical member’s inverse
demand function for weekly visits (Q) is known to you and is given
as P = 100 – 20Q, where P is the fee charged for each visit. Your
cost function is C = 20Q.
i. If you operate your business as a single price monopolist,
what fee you will charge for each visit and what profit you will
earn?
ii. Acting as a single-price monopolist (as above),...

You are the manager of a golf course. A typical member’s inverse
demand function for weekly visits (Q) is known to you and is given
as P = 100 – 20Q, where P is the fee charged for each visit. Your
cost function is C = 20Q.
i. If you operate your business as a single price monopolist, what
fee you will charge for each visit and what profit you will
earn?
ii. Acting as a single-price monopolist (as above),...

Suppose you manage a firm whose marginal product of capital is
currently 16 and whose marginal product of labor is currently 5.
The rental price of capital is 5, and the wage is 2.
If you want to expand output, should you increase capital or
labor? Explain.
If you do what is in part B, which of your numbers are likely to
change?
As this process unfolds, what equation will become true?

Assume that you were also asked to manage a portfolio of
European stocks. How would your method for measuring your
performance in managing this portfolio differ from the U.S. stock
portfolio in the previous question?

Suppose land is currently selling for $2,500 an acre and that
you expect land prices to go up at an annual rate of 6 percent over
the next 10 years.
a. Ignoring the annual net cash flow generated by this land for
the moment, can you justify purchasing this land at this price if
your required rate of return is 8 percent and capital gains are
taxed at a 20 percent rate? Assume you plan to sell this land 10...

Suppose that Perfect Labs produces autoclaves (laboratory
equipment) at a constantmarginal cost equal to $20,000 and a fixed
cost of $10 billion. Perfect Labs sells its autoclaves in Canada
and in Germany. You are trying to determine the best pricing
strategy for Perfect Labs and you know that the demands in each
country are the following:
Qg = 4,000,000 - 100Pg and Qc = 1,000,000 - 20Pc
a) What is the quantity of autoclaves that Perfect Labs will
sell in...

Suppose that you manage a mutual fund. You have extensively
researched two stocks, Citi and Tesla. Given your research, you
anticipate that Citi will return 8% next year and that Tesla will
return 7%. Tesla stock has a beta of 0.75 and Citi has a beta of
1.9. The yield on a one-year Treasury bond is 2% and you expect the
market premium to be 4%. Currently you hold both Citi and Tesla as
part of a broadly diversified portfolio...

Suppose your wealthy Aunt Lucy has asked you to manage her large
stock portfolio. You would like to buy and/or sell options on many
of the stocks she owns. Describe the types of options you would buy
or sell, as well as your rationale, given the following
circumstances:
a) Aunt Lucy owns 10,000 shares of IBM common stock. You believe
it is going to fall in price, but she won't let you sell it because
her late husband told her...

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