Class Discussion Questions - Chapter 1

2. You are in the market for a new refrigerator for your companys lounge, and you have
narrowed the search down to two models. The energy-efficient model sells for $700 and
will save you $45 at the end of each of the next five years in electricity costs. The
standard model has features similar to the energy-efficient model but provides no future
saving in electricity costs. It is priced at only $500. Assuming your opportunity cost of
funds is 6 percent, which refrigerator should you purchase?
3. Suppose that the total benefit and total cost from a continuous activity are,
respectively, given by the following equations: B(Q) = 100 + 36Q 4Q2 and C(Q) = 80 +
12Q. [Note: MB(Q) = 36 8Q and MC(Q) = 12.]
a. Write out the equation for the net benefits.
b. What are the net benefits when Q = 1? Q = 5?
c. Write out the equation for the marginal net benefits.
d. What are the marginal net benefits when Q = 1? Q = 5?
e. What level of Q maximizes net benefits?
f. At the value of Q that maximizes net benefits, what is the value of marginal net
benefits?

9. Suppose the total benefit derived from a continuous decision, Q, isB(Q)= 20Q 2Q2
and the corresponding total cost is C(Q) = 4 + 2Q2, so that MB(Q) = 20 4Q and MC(Q)
= 4Q.
b. What is marginal benefit when Q = 2? Q = 10?
e. What is marginal cost when Q = 2? Q = 10?
g. What level of Q maximizes net benefits?
12. You are in the market for a new refrigerator for your companys lounge, and you have
narrowed the search down to two models. The energy-efficient model sells for $700 and
will save you $45 at the end of each of the next five years in electricity costs. The
standard model has features similar to the energy-efficient model but provides no future
saving in electricity costs. It is priced at only $500. Assuming your opportunity cost of
funds is 6 percent, which refrigerator should you purchase?
19. You are the manager in charge of global operations at Bank Globala large
commercial bank that operates in a number of countries around the world. You must
decide whether or not to launch a new advertising campaign in the U.S. market. Your
accounting department has provided the accompanying statement, which summarizes the
financial impact of the advertising campaign

You are the manager in charge of global operations at Bank Globala large commercial
bank that operates in a number of countries around the world. You must decide whether
or not to launch a new advertising campaign in the U.S. market. Your accounting
department has provided the accompanying statement, which summarizes the financial
impact of the advertising campaign