131453 1 mgt 630 om 630 final exam review questions

8/12/2019 131453 1 MGT 630 OM 630 Final Exam Review Questions

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MGT 630 OM 630 Final Exam Review Questions

1. Angela Bates, who works in a duplicating (photocopying) establishment for $2, peryear, decides to open a small duplicating business of her own. !he runs the operation by

herself without hired help and in"ests no money of her own. !he rents the premises for

$1#, per year and machines for $2#, per year. !he spends $1, per year on

supplies (paper, ink, en"elopes), electricity, telephone, and so on. uring the year, her

gross earnings are $%#,.

A. &s she successful in an accounting sense' hy or why not'

B. &s she successful in an economic sense' hy or why not'

. !hould she remain in business after her first year, if she has no strong preferences

between working for herself and working for others in a similar capacity' *+plain.

2. Airway *+press has an e"ening flight from os Angeles to -ew ork with an a"erage of

/ passengers and a return flight the ne+t afternoon with an a"erage of # passengers.

0he plane makes no other trips. 0he charge for the plane remaining in -ew ork

o"ernight is $1,2 and would be ero in os Angeles. 0he airline company is

contemplating eliminating the night flight out of os Angeles and replacing it with a

morning flight. 0he estimated number of passengers is % in the morning flight and # inthe return afternoon flight. 0he oneway ticket for any flight is $2. 0he operating cost

of the plane for each flight is $11,. 0he fi+ed costs for the plane are $3, per day

whether it flies or not.

A. !hould the airline replace its night flight from os Angeles to -ew ork with a

morning flight' hy or why not'

B. !hould the airline remain in business' hy or why not'


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3. onsider the case of Apple omputer, &nc. 0he firm currently e+periences the following

internal and e+ternal (i.e. market) characteristics4

*asy access to distribution channels, as illustrated by directtothecustomer sales

Achie"ement of constant returns to scale at relati"ely low le"els of output (i.e. the

firm achie"es minimum efficient scale relati"ely 5uickly)

6ni5ue component suppliers

7peration in a fragmented industry structure (i.e. the 8 industry is fragmented)

8rice competition is the focus of competiti"e strategic tactics used in the 8

industry

9igh fi+ed costs relati"e to "ariable costs in the 8 industry

:elati"ely slow growth rates of demand in the 8 industry

A. Based upon 8orter;s model, does the e+istence of easy access to distribution

channels and small minimum efficient scale indicate high or low barriers to entry

in the 8 industry' hy'

B. Based upon 8orter;s model, do suppliers appropriate little or most of the "alue in

the 8 "alue chain' hy'

. Based upon 8orter;s model, is the intensity of ri"alry in the 8 industry high or

low' hy' .


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#. 0he makers of methyl methacrylate, u 8ont and :ohm and 9aas, used to sell it at /#cents per pound for commercial purposes, but for denture purposes it was sold to the

dental profession for $


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C. 0he 9ayes ompany is composed of a marketing di"ision and a production di"ision. 0heproduction di"ision produces a raw material that it transfers to the marketing di"ision.0here is an e+ternal market for this raw material, with the price in this market (which is

perfectly competiti"e) being $1/ per pound. 0he production di"ision;s a"erage cost ofproduction is $22 per pound. 0he D8 of the production di"ision argues that the transferprice for this raw material should be $22, otherwise this di"ision cannot co"er its costs.9owe"er, the D8 of the marketing di"ision argues that the transfer price for this rawmaterial should be $1/, otherwise this di"ision will be paying more than it needs to.hich D8 is correct' hy'

1. 0he alifornia orporation is composed of a marketing di"ision and a productiondi"ision. 0he marginal cost of producing a unit of the firm;s product is $/ per unit, andthe marginal cost of marketing the product is $> per unit. urrently, the firm produces>,2 units of the product, all of which is sold (i.e. transferred) to the marketing di"isionfor use in its ad"ertising. 0he marketing di"ision, in turn, uses ad"ertising and packagingschemes to generate enough demand for the product so that it can be sold for $1% perunit. 0here is no e+ternal market for the product made by the production di"ision, as theproduct is sold by the marketing di"ision. 0he production and marketing di"isions arein"ol"ed in a transfer pricing dispute, in that the marketing di"ision argues that thetransfer price should be its marginal cost of $> per unit while the production di"isionclaims it should be its marginal cost of $/ per unit. hich di"ision is correct' hy'

11. !uppose that a change in tastes occurs in the *uroone (the 1% *uropean 6nion nationsthat currently use the euro EFG as their official, domestic currency) such that residents in*uroone nations are prompted to purchase more goods and ser"ices from the 6.!. &nother words, *uroone consumers purchase more imports from the 6.!.A. hat would be the effect on the 6.!. dollareuro (i.e. 6.!. dollars per euro, or $/F)

e+change rate as a result of this situation'B. hich currency has appreciated' hich currency has depreciated'. 9ow would this situation affect the sales of a firm that produces in the 6.!. but sells

goods and ser"ices to *uroone residents' *+plain carefully.


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12. !uppose a recent issue of the Financial Times of London states in an article thatinflation in the 6.!. is running at >@ while inflation in the 6.H. is running at

131453 1 mgt 630 om 630 final exam review questions

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