BUSI 620 BUSI620 Module 4 Critical Thinking (Liberty University)

BUSI 620 BUSI620 Module 4 Critical Thinking (Liberty University)


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BUSI620 Module 4 Critical Thinking (Liberty University)

Salvatore’s Chapter 8:

a) Discussion Questions: 2 and 10.

b) Problems: 3, 11, and spreadsheet problem 1 (p. 357).


Discussion Question 2:

a) What is the distinction between marginal cost and incremental cost?

b) How are sunk costs treated in managerial decision making? Why?


Discussion Question 10: What are the aim, usefulness, and shortcomings of

a) Cost-volume-profit analysis and

b) The concept of operating leverage?


Problem 3:Airway Express has an evening flight from LA to NY with an average of 80 passengers and a return flight the next afternoon with an average of 50 passengers. The plane makes no other trip. The charge for the plane remaining in NY overnight is $1,200 and would be zero in LA. The airline is contemplating eliminating the night flight out of LA and replacing it with a morning flight. The estimated number of passengers is 70 in the morning and 50 in the return afternoon flight. The one-way ticket for any flight is $200. The operating cost of the plane for each flight is $11,000. The fixed cost for the plane is $3,000 per day whether it flies or not.

a) Should the airline replace its night from LA with a morning flight?

b) Should the airline remain in business?


Problem 11: The Goldberg- Scheinman Publishing Company is publishing a new managerial economics text for which it has estimated the following total fixed and average variable costs.


Total fixed costs:

Copy editing


Selling and promotion




Total fixed costs:


Average variable costs:

Printing and binding

Administrative costs

Sales commissions

Bookstore discounts

Author’s royalties






Average variable costs


Project selling price



  1.  Determine the breakeven output and total sales revenues and draw the cost-volume-profit chart
  2.  Determine the output that would generate a total profit of $60,000 and the total sales revenues at that output level; draw the cost-volume-profit chart.

Spreadsheet problem 1: For the following table, calculate in Excel the average fixed costs (AFC), the average variable cost (AVC), the average total costs (ATC), and the marginal costs (MC).(note total fixed cost=$30)

Salvatore’s Chapter 9:

a) Problems: 7, 11, and spreadsheet problem 1.

Problem 7: From figure 9-4, determine the effect of a 33 percent tariff on commodity X


Problem 11: Most book publishers pay authors a percentage of the revenue from book sales. Explain the conflict that this creates between publishers and authors.


Spreadsheet problem 1: If the market supply function of a commodity is QS=3,250 and

a) the market demand function is QD=4,750-50P is expressed in dollars, use Excel to calculate values QD and QS for P from 25 to 50 in 1’s.

b) If the market demand increased to Q’D=5,350-50P, what is the equilibrium price?

c) If the market demand decreased to Q’’D=4,150-50P, what is the equilibrium price?

d) For (a)-(c), if TC=0.005Q2-Q, what is the profit in each case?

Froeb et al.’s Chapter 9:

a) Individual problems: 9-3 and 9-4.

Individual problem 9-3: Snack food vendors and beer distributors earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When CA voted on legalizing marijuana, which side do you think that California beer distributors were on? What about the snack food vendors? Why?


Individual problem 9-4: Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or pricing strategies?


Froeb et al.’s Chapter 11:

a) Individual problems: 11-4 and 11-5.

Individual problem 11-4: How does a decrease in US interest rates affect the EU/US exchange rate?


Individual problem 11-5: How will a dollar devaluation affect businesses and consumers in the twin cities of El Paso, US and Juarez, Mexico?

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