MBA 540 Mid-term Exam XXXXXXXXXXpts.) Abbey Lee Layland is having a difficult time deciding whether or not to pursue her DBA. How would understanding the concept of opportunity costs help her make a...

MBA 540 Mid-term Exam XXXXXXXXXXpts.) Abbey Lee Layland is having a difficult time deciding whether or not to pursue her DBA. How would understanding the concept of opportunity costs help her make a decision? XXXXXXXXXXpts.) A local brewery has to choose one of the four possible combinations of inputs listed below. The two inputs are workers and machines. If they rent expensive machines, then they can hire fewer workers to produce the same output. The input combinations are: Method 1: 20 workers 10 machines Method 2: 50 workers 2 machines Method 3: 100 workers 0 machines Method 4: 10 workers 12 machines Assume that hiring a worker costs $10 and renting each machine costs $100. Which method should they use and why? XXXXXXXXXXpts.) Volkswagen was clearly a company riddled with flawed organizational design and it suffered from “bad management.” What were the problems with this corporation from an organizational architecture point of view? XXXXXXXXXXpts.) For many corporations such as utility companies, a major portion of the cost of production is fixed in the short run. Should these very large fixed costs be ignored when the executives are making output and pricing decisions? Why? 5. (10pts.) Choose a real-life example of a firm that you think is part of an oligopoly market and describe the characteristics of the market structure that explain why the firm would be classified as such XXXXXXXXXXpts.; 2 pts each) You are the manager for Papa John’s and know the following elasticities: η= 1.5 η I = 1.2 η xy1 = 0.5 η xy2 = -0.5 η is the price elasticity of demand for Papa John’s (PJ) cheese pizza, ηxy1 is the cross elasticity of demand between PJ cheese pizza and Pizza Hut’s (PH) cheese pizza, ηxy2 is the cross elasticity of demand between PJ cheese pizza and PJ breadsticks, and η I is the income elasticity of PJ cheese pizza. a) If you want to increase your sales of PJ cheese pizza by 30%, in what direction and by how much do you need to change the price? b) If you make the percentage price change that you calculated in part a) will total revenue increase or decrease? How do you know? c) Pizza Hut lowers its price of cheese pizza by 20%. The demand for Papa John’s cheese pizza will change by what percentage and in what direction? d) Papa John’s raises the price of its breadsticks by 15%. The demand for Papa John’s cheese pizza will change by what percentage and in what direction? e) If average income increases by 5% by what percentage and in what direction will the demand for Papa John’s cheese pizza change? Are PJ cheese pizzas a normal good or an inferior good and how do you know? XXXXXXXXXXpts.) Sony and LG are competing on the newest version of HD TVs. Two pricing strategies exist: price high or price low. The profit from each of the four possible combinations of decisions is given in the following payoff matrix: LG’s price High ($4000) Low ($2000) Sony’s price High ($4000) Low ($2000) Payoffs in dollars of profit. a) (2 pts.) Which strategy offers both Sony and LG the best combined financial outcome? b) (2 pts.) Does either firm have a dominant strategy? If yes, which firm and what strategy? c) (4 pts.) The Nash equilibrium is for LG to set its price at __________ and earn a profit of __________ and for Sony to set its price at ______________ and earn a profit of _____________. d) (2 pts.) Why do we see that the strategy that results is not the strategy that offers both players the best financial outcome?