A manager invests 20,000 in equipment that would help the company reduce it's per unit costs from 15 to 12 . He expects the equipment to be in use for the next seven years. After two years, he realizes that if he outsourced the production, the unit cost would be 7 instead. At this point what should the senior manager do?
a. Charge the manager for the next five years of depreciation
b. Write off the equipment as sunk cost and allow for outsourcing since it is cheaper
c. Not allow for outsourcing since the equipment is good for another five years
d. None of the above
QUESTION 2A firm that acquires a substitute product can try to reduce inter-product cannibalization by
a. Doing nothing
b. Repositioning its product or the substitute so that they do not directly compete with each other
c. Pricing each product at the same level
d. Lowering the prices on both the products
QUESTION 3A company invested 400,000 in a technology that reduced the overall costs of production by reducing their cost per unit from 2 to 1.85 . Later, a manager has an opportunity to outsource production to another company at a cost per unit of 1.75 . If you are the manager, you
a. should consider the 400,000 as a sunk cost, not relevant to the decision.
b. should reduce his effort by ignoring any new developments and letting the production run as it is.
c. should ignore the 400,000 fixed cost.
d. Both A & C
QUESTION 4Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because
a. They lose market power
b. There is an increase in the overall demand for their products
c. The bundle has a more elastic demand than individual goods
d. The bundle has a more inelastic demand than individual goods
QUESTION 5A firm wishes to shut down an office and fire 100 employees. The company will save 3000 per month per employee. It is estimated that each employee contributes 4,100 to the company. The firm rents office space for this group of employees at 1500 . What should the company do?
a. Fire the employees and save 1500 on rent
b. Not fire the employees keeping them generates a profit of 1100 per employee
c. Not fire the employees since keeping them generates a profit of 1085 per employee
d. None of the above
QUESTION 6Firm X owns both a grocery store and the parking lot outside the grocery store. In order to increase the traffic at the store, the store should
a. Decrease the prices on the goods sold in the store
b. Increase the parking rates
c. All of the above
d. None of the above
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