Question

In: Economics

Managerial economists, as well as business economists, often are hired as consultants to firms regarding the...

Managerial economists, as well as business economists, often are hired as consultants to firms
regarding the appropriate pricing policy and strategy to utilize so as to maximize economic
profits. Sometimes firms utilize what they believe is an optimal pricing policy and strategy, only
to discover that they are in fact not maximizing their economic profits, and hence not really
adding value to the business.

For each of the following scenarios, provide advice on the appropriate pricing policy and
strategy, including the profit-maximizing price(s), for each firm.

1.      The price elasticity of demand for a managerial economics textbook sold in the U.S. is
estimated to be -2.0, whereas the price elasticity of demand for managerial economics
textbooks sold overseas is estimated to be -3.0. The U.S. market requires primarily
hardcover textbooks with a marginal cost of $6; the overseas market is normally served
with soft cover textbooks, having a marginal cost which is $1.50 less. A textbook sales
firm wishes to set the appropriate prices in each market for this managerial economics
textbook. What advice would you give this firm with regards to its pricing policy and
strategy? Why?

2.      An automobile manufacturer prices its automobiles utilizing a mark-up of 20% above its
per-unit costs of production. The manufacturer believes that this mark-up will fully
compensate the firm for the extraneous costs associated with producing automobiles and,
in addition, return a decent profit. Currently, the average cost of producing an automobile
to the firm is $10,000 and the price elasticity of demand for the manufacturer's
automobiles is -4 and the fum sells its automobiles for $12,000 each. What advice would
you give this firm with regards to its pricing policy? Why?

The California Corporation is composed of a marketing division and a production
division. The marginal cost of producing a unit of the firm's product is $8 per unit, and
the marginal cost of marketing the product is $6 per unit. Currently, the firm produces
6,200 units of the product, all of which is sold (i.e. transferred) to the marketing division
for use in its advertising. The marketing division, in turn, uses advertising and packaging
schemes to generate enough demand for the product so that it can be sold for $107 per
unit. There is no external market for the product made by the production division, as the
product is sold by the marketing division. The production and marketing divisions are
involved in a transfer pricing dispute, in that the marketing division argues that the
transfer price should be its marginal cost of $6 per unit while the production division
claims it should be its marginal cost of $8 per unit. What advice would you give this fum
with regards to dealing with the transfer pricing dispute? Why?

Please show all work, and do not copy from other Chegg user.

Solutions

Expert Solution


Related Solutions

Managerial economists, as well as business economists, often are hired as consultants to firms regarding the...
Managerial economists, as well as business economists, often are hired as consultants to firms regarding the appropriate pricing policy and strategy to utilize so as to maximize economic profits. Sometimes firms utilize what they believe is an optimal pricing policy and strategy, only to discover that they are in fact not maximizing their economic profits, and hence not really adding value to the business. For each of the following scenarios, provide advice on the appropriate pricing policy and strategy, including...
Most economists assume that the goal or objective of business firms is to
Most economists assume that the goal or objective of business firms is to be socially responsible maximize size. maximize profits. satisfice.maximize sales.
large firms and smaller entrepreneurial firms play differentroles in business and society and can often...
large firms and smaller entrepreneurial firms play different roles in business and society and can often -produce the best results by partnering with each other rather than acting as adversaries. The pharmaceu- tical industry is an excellent example of how this works. Tt is well-known that barriers to entry in the pharma- ceutical industry are high. The average new product takes between 10 and 15 years from dişcovery to commercial sale. The process of discovering, testing, obtaining approval, manufacturing, and...
A key skill of consultants is to be able to perform a strategic analysis. Often this...
A key skill of consultants is to be able to perform a strategic analysis. Often this involves forecasting what the future will bring to a sector or an industry based on specific assumptions and giving advice on the basis of those scenarios. Based upon what you know of existing trends in the consultancy industry what forecasts can you make about the next ten years? If you were leading KPMG’s advisory business: 1 What trends would be central to their strategic...
Economists are often blamed as cruel and calculating. This section makes it feel as though economists...
Economists are often blamed as cruel and calculating. This section makes it feel as though economists consider consumers to be human calculators in order to maximize their welfare. How would you explain the following paradox? Economic theory assumes that consumers always want more, and they are constrained by their resources. (If they had $1 more they would find a way to spend it and increase their happiness). It that's the case, how would you explain charity? Aren't consumer just simply...
describe managerial accounting and the role of managerial accounting in business.
describe managerial accounting and the role of managerial accounting in business.
The benefit to having a well-constructed business continuity plan is often implicit. What is the best...
The benefit to having a well-constructed business continuity plan is often implicit. What is the best way to convince the management team to undertake such a plan?
You have been hired as consultants to design and implement a widespread security initiative for a...
You have been hired as consultants to design and implement a widespread security initiative for a rapidly expanding global eCommerce corporation with two websites and locations in New York, Chicago, San Francisco, London, Paris and Johannesburg. Business is good! In the next three months, the corporation will be acquiring another company in a different line of business with plans to offer products for sale online. Part of your role is to recommend the best way for integrating both environments. However,...
For this activity, you have been hired as a team of consultants on a multi-year basis...
For this activity, you have been hired as a team of consultants on a multi-year basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high-end model and an economic model. You are tasked to complete several calculations and present your findings to the company stakeholders. You may use any presentation software (Google Slides, Prezi, PowerPoint, etc.) and your completed presentation should consist of 8 – 12 slides. A copy of the...
For this activity, you have been hired as a team of consultants on a multi-year basis...
For this activity, you have been hired as a team of consultants on a multi-year basis for a global washer and dryer manufacturer. They currently offer two core washer and dryer sets: a high-end model and an economic model. You are tasked to complete several calculations and present your findings to the company stakeholders. You may use any presentation software (Google Slides, Prezi, PowerPoint, etc.) and your completed presentation should consist of 12 – 15 slides. A copy of the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT