a. Using the concept of net present value and opportunity
cost, explain when it is rational for an individual to pursue an M.B.A. degree.

b. What would you expect to happen to the number of
applicants if the starting salaries of managers with M.B.A. degrees remained
constant but salaries of managers without such degrees increased by 20 percent?
Why?

2. Jamie is considering leaving her current job, which pays
$75,000 per year, to start a new company that manufactures a line of special
pens for personal digital assistants. Based on market research, she can sell
about 50,000 units during the first year at a price of $4 per unit. With annual
overhead costs and operating expenses amounting to $145,000, Jamie expects a
profit margin of 20 percent. This margin is 5 percent larger than that of her
largest competitor, Apps, Inc.

a. If Jamie decides to embark on her new venture, what will
her accounting costs be during the first year of operation? Her implicit costs?
Her opportunity costs?

b. Suppose that Jamie’s estimated selling price is lower
than originally projected during the first year. How much revenue would she
need in order to earn positive accounting profits? Positive economic profits?

7. You are the manager of a firm that receives revenues of
$40,000 per year from product X and $90,000 per year from product Y. The own
price elasticity of demand for product X is -1.5, and the cross-price
elasticity of demand between product Y and X is 1.8. How much will your firm’s
total revenues (revenues from both products) change if you increase the price
of good X by 2 percent?