Solution for Managerial Economics 4th Edition Chapter 1, Problem 1

by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
147 Solutions 23 Chapters 104017 Studied ISBN: 9781305259331 Economics 5 (1)

Chapter 1, Problem 1 : 1-1 Goal Alignment at a Small Manufacturing Concern...

1-1 Goal Alignment at a Small Manufacturing Concern

The owners of a small manufacturing concern have hired a manger to run the company with the expectation that he will buy the company after five years.  Compensation of the new Vice President is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000.  Purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years.

a.  Plot the annual compensation of the vice president as a function of annual profit.

Step-By-Step Solution

1-1 a. Assume for now the VP has a base salary of 50,000. If so, when P≤$150000, his compensation can be determined by the equation C = 50000+0.75(P). When P≥150000, compensation is determined by the equation C=(50000+0.75(150000)) + 0.1P, which means C=162500+0.1P. The plot for compensation can be seen below.

Unlimited Access Free
Signup & Access More than 10 Million+
  • Textbook Solutions
  • Flashcards
  • Homework Answers
  • Documents
All Chapters Solved


Is this a textbook?

We do not endorse or sell any Textbooks in this service. This is only a solution guide for the textbook shown. So, you will find all the answers to questions in the textbook, indexed for your ease of use. ExploreNow!

I am unable to find the book I need.

You can request for your textbook to be answered. While you may get the book resolved within 15-20 days’ subject to expert availability and can access it at no cost if you are premium member, We encourage you to use our Study Help service for the specific question or even a full chapter you currently, need within a 24-48-hour window.

My book is similar but not the same!

This may be due to different versions or editions of the same book. You can check the table of contents and match the questions in each chapter (As you can see, the questions are free to view for the entire book). You can subscribe if you decide the step-by-step solutions will be useful albeit the differences.

Not all questions are answered!

We try not to post guidebooks that are under progress. However, some guides are so high in demand that we have to post them as we work on them. If you find the notification stating, "An expert is currently solving this for you" in the answer section, you can contact customer support to know the status or even get an instant answer if you are a premium member.

The ISBN's are not matching!

Check if there are other ISBN's mentioned on the book cover page. If it still does not match, check the samples available to ensure you are on the right guide. 

Can I see some samples?

Every chapter in the book has the first three solutions displayed in full for free. Browse the chapters and questions to view the same. 

Is it possible to see a specific answer before I subscribe?

Contact customer support via Live Chat to request the same. They will assist you with the full answer if it is a simple question or a partial answer to assure you of the availability if it is a large solution.