BUS 5421- Managerial Economics

BUS 5421 Managerial EconomicsHomework 3 (30 points)Chapter 3 Marginal Analysis for Optimal Decisions Due in class: Tuesday (March 18) Answer each question completely.1. Consider total cost and total revenue given in the following table:Level ofactivity,A01234567 TotalCost MarginalCost TotalBenefits MarginalBenefits $89101113192737 — $08162432404856 NetBenefits — a. (3 points) Calculate net benefits for each level of activity. How much activity should thefirm undertake to maximize net benefits? b. (6 points) Calculate marginal benefit and marginal cost for each quantity. At what level ofactivity does marginal benefit equal to marginal cost? How does this relate to youranswer in part (a)? 2. (3 points) Fill in the blanks. If MB is greater than MC, then increasing the level of activityby one unit ______________ (increases, decreases) net benefits. If MB is less than MC,then increasing the level of activity by one unit ______________ (increases, decreases)net benefits. The manager should choose the level of activity where MB and MC are_______________ (zero, equal). 3. (4 points) You are interviewing three people for one marketing job. On the basis of yourexperience and insight, you believe candidate A can sell 700 units a day, candidate B cansell 550 units a day, and candidate C can sell 500 units a day. The daily salary each person BUS 5421 Managerial Economicsis asking is as follows: A, $200; B, $150; and C, $100. How would you rank the threeapplicants? Show you calculations.4. (3 points) Fill in the blanks. When choosing the levels of two activities, A and B, in orderto maximize total benefits within a given budget:a. If at the given levels of A and B, MBA/PA is ___________________ MBB/PB,increasing A and decreasing B while holding expenditure constant will increase totalbenefits.b. If at the given levels of A and B, MBA/PA is ___________________ MBB/PB,increasing B and decreasing A while holding expenditure constant will increase totalbenefits.c. The optimal levels of A and B are the levels at which MBA/PA _____________MBB/PB.5. (11 points) Answer Applied Problem 7 on page 114.Janice Walker, the manager of the customer service department at First Bank of JeffersonCounty, can hire employees with a high school diploma for $20,000 annually andemployees with a bachelor’s degree for $30, 000. She wants to maximize the number ofcustomers served, given a fixed payroll. The following table shows how the total numberof customers served varies with the number of employees.# of employees123456 High School Diploma120220300370430470 Bachelor’s Degree100190270330380410 a. If Ms. Waller has a payroll of $160,000, how should she allocate this budget in orderto maximize the number of customers served?b. If she has a budget of $150,000 and currently hires three people with high schooldiplomas and three with bachelor’s degrees, is she making the correct decision? Whyor why not? If not, what should she do? (Assume she can hire part time workers).c. If her budget increased to $240,000, how should she allocate this budget?