Problem Set #5

Assignment 1:

Reflect on the assigned readings for Week 5 and then type a two page paper regarding what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.  Define and describe what you thought was worthy of your understanding in half a page, and then explain why you felt it was important, how you will use it, and/or how important it is in managerial economics. After submitting your two page paper as an initial post in the “Reflection and Discussion Forum,” then type at least two peer replies in response to your classmates posts (200 word minimum each).

Assignment 2:

Problem Set #5

1. Nestlé’s has over one hundred production facilities that all purchase hair nets and other hygienic supplies through independent suppliers. Nestlé created a centralized purchasing system that is cumbersome to use has the potential to bargain for lower prices. Suppose that a division can purchase hairnets for $8 independently. If they all purchase through the central system, hairnets cost $6. But if one division uses the system and the other purchases independently, the cost to the first is $9 while the cost to the second is $7. What does the simultaneous move game look like and what is the equilibrium?

2. The Doug’s Delicious Diner faces a demand curve for its daily special in which there are an equal number of potential buyers at every $0.20 price point between $8.00 and $6.00. If the marginal cost is $6.35, what price maximizes profits? Doug notices that at this price the unserved portion of demand are all senior citizens. If it offered a senior discount, how much should it be?