Reference no: EM131358405

Assignment 1 -

1. How is the concept of a normal return on investment related to the distinction between business and economic profit?

2. Determine which of two investment projects a manager should choose. The first project promises a profit of $ 100,000 in each of the next four years, while the second project promises a profit of $ 75,000 in each of the next six years.) Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20 percent.

3. "Integrating Problem Samantha Roberts has a job as a pharmacist earning $ 30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $ 40,000 per year or to purchase a pharmacy that generates revenue of $ 200,000 per year. To purchase the pharmacy, Samantha would have to use her $ 20,000 savings and borrow another $ 80,000 at an interest rate of 10 percent per year. The pharmacy that Samantha is contemplating purchasing has additional expenses of $ 80,000for supplies, $ 40,000 for hired help, $ 10,000 for rent, and $ 5,000 for utilities. Assume that income and business taxes are zero and that the repayment of the principal of the loan does not start before three years. (a) What would be the business and economic profit if Samantha purchased the pharmacy? Should Samantha purchase the pharmacy? (b) Suppose that Samantha expects that another pharmacy will open nearby at the end of three years and that this will drive the economic profit of the pharmacy to zero. What would the revenue of the pharmacy be in three years? (c) What theory of profit would account for profits being earned by the pharmacy during the first three years of operation? (d) Suppose that Samantha expects to sell the pharmacy at the end of three years for $ 50,000 more than the price she paid for it and that she requires a 15 percent return on her investment. Should she still purchase the pharmacy?

4. "Using the data below, where column A represents student numbers, column B the finishing time for a 1 mile race for 10 students, and column C the age of the students (a) Use the data analysis tools to plot a line graph of all the finishing times. (b) Calculate a mean, median, mode, sample variance, sample standard deviation, and coefficient of variation to statistically describe the data. (c) Use Excel to find the covariance between the two variables. What does the covariance indicate about the relationship between finishing time and age?

5. "You won a free ticket to see a Bruce Springs-teen concert (assume the ticket has no resale value). U2 has a concert the same night, and this represents your next- best alternative activity. Tickets to the U2 concert cost $ 80, and on any particular day, you would be willing to pay up to $ 100 to see this band. Assume that there are no additional costs of seeing either show. Based on the information presented here, what is the opportunity cost of seeing Bruce Springsteen?

6. Due to the housing bubble, many houses are now selling for much less than their selling price just two to three years ago. There is evidence that homeowners with virtually identical houses tend to ask for more if they paid more for the house. What fallacy are they making?

7. "How would you react to a sales manager's announcement that he or she has in place a marketing program to maximize sales?

8. "Given the following total- revenue function: TR = 9Q - Q^2 ( a) Derive the total-, average-, and marginal-revenue schedules from Q = 0 to Q = 4 by 1' s.

NOTE:

2. Revised P1(a): Derive the total-revenue, average-revenue, and marginal-revenue schedules from Q = 0 to Q = 4 by 1s.

Average revenue (AR) = total revenue (TR)/Q

Marginal revenue (MR) = change in total revenue/change in Q

9. "Given the following total- cost schedule:

Q     TC

0      1

1     12

2     14

3     15

4     20

Derive the average- and marginal- cost schedules."

10. With the total-revenue schedule of Problem 1 and the total-cost schedule of Problem 7, show the profit-maximizing level of output (profit=TR-TC).

11. Your insurance firm processes claims through its newer, larger high- tech facility and its older, smaller low- tech facility. Each month, the high- tech facility handles 10,000 claims, incurs $ 100,000 in fixed costs and $ 100,000 in variable costs. Each month, the low- tech facility handles 2,000 claims, incurs $ 16,000 in fixed costs and $ 24,000 in variable costs. If you anticipate a decrease in the number of claims, where will you lay off workers?

12. A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as work-ers. Would you recommend they hire another employee or buy another copier?

Assignment 2 -

1. "If the price increases by 10 percent, by how much does the quantity of household ( a) natural gas and ( b) electricity change in the short run and in the long run? (Hint: Use the price- elasticity values in Table 4- 3.

2. "Suppose that the cross- price elasticity of demand between McIntosh and Golden Delicious apples is 0.8, between apples and apple juice is 0.5, between apples and cheese is 0.4, and between apples and beer is 0.1. What can you say about the relationship between each set of commodities?

3. "Starting with the estimated demand function for Chevrolets given in Problem 2, assume that the average value of the independent variables changes to N = 225 million, I = $ 12,000, P F = $ 10,000, P G = 100 cents, A = $ 250,000, and P I = 0 (i.e., the incentives are phased out). (a) Find the equation of the new demand curve for Chevrolets. (b) Plot this new demand curve, D' C , and, on the same graph, plot the demand curve for Chevrolets, D C.

4. "The total operating revenues of a public transportation authority are $ 100 million while its total operating costs are $ 120 million. The price of a ride is $ 1, and the price elasticity of demand for public transportation has been estimated to be - 0.4. By law, the public transportation authority must take steps to eliminate its operating deficit. (a) What pricing policy should the transportation authority adopt? Why? (b) What price per ride must the public transportation authority charge to eliminate the deficit if it cannot reduce costs?

5. A researcher estimated that the price elasticity of demand for automobiles in the United States is - 1.2, while the income elasticity of demand is 3.0. Next year, U. S. automakers intend to increase the average price of automobiles by 5 percent, and they expect consumers' disposable income to rise by 3 percent. (a) If sales of domestically produced automobiles are 8 million this year, how many automobiles do you expect U. S. automakers to sell next year? (b) By how much should domestic auto-makers increase the price of automobiles if they wish to increase sales by 5 percent next year?

6. "Integrating Problem: The research department of the Corn Flakes Corporation (CFC) estimated the following regression for the demand of the cornflakes it sells:

QX = 1.0 - 2.0PX + 1.5I + 0.8PY - 3.0PM + 1.0A

where QX = sales of CFC cornflakes, in millions of 10-ounce boxes per year

PX = the price of CFC cornflakes, in dollars per 10-ounce box

I = personal disposable income, in trillions of dollars per year

PY = price of competitive brand of cornflakes, in dollars per 10-ounce box

PM = price of milk, in dollars per quart A = advertising expenditures of CFC cornflakes, in hundreds of thousands of dollars per year

This year, PX = $2, I = $4, PY = $2.50, PM = $1, and A = $2. (a) Calculate the sales of CFC cornflakes this year. (b) Calculate the elasticity of sales with respect to each variable in the demand function. (c) Estimate the level of sales next year if CFC reduces PX by 10 percent and increases advertising by 20 percent, I rises by 5 percent, PY is reduced by 10 percent, and PM remains unchanged. (d) By how much should CFC change its advertising if it wants its sales to be 30 percent higher than this year?"

7. "George has been selling 5,000 T- shirts per month for $ 8.50. When he increased the price to $ 9.50 he sold only 4,000 T- shirts. What is the demand elasticity? If his marginal cost is $ 4 per shirt, what is his desired markup and what is his initial actual markup? Was raising the price profitable?

8. "To conduct an experiment, AMC increased movie ticket prices from $ 9.00 to $ 10.00 and measured the change in ticket sales. Using the data over the following month, they concluded that the increase was profitable. However, over the subsequent months, they changed their minds and discontinued the experiment. How did the timing affect their conclusion about the profitability of increasing prices?

9. "An end- of- aisle price promotions changes the price elasticity of a good from - 2 to - 3. If the normal price is $ 10, what should the promotional price be?

10. "In a study published in 1980, B. B. Gibson estimated the following price and income elasticities of demand for six types of public goods: (a) Do these public goods conform to the law of demand? For which public goods is demand price elastic? (b) What types of goods are these public goods? (c) If the price or cost of college and university education increased by 10 percent and, at the same time, incomes also increased by 10 percent, what would be the change in the demand for college and university education?

11. "Starting with the data for Problem 6 and the data on the price of a related commodity for the years 1986 to 2005 given below, we estimated the regression for the quantity demanded of a commodity ( which we now relabel QˆX ), on the price of the commodity ( which we now label P X ), consumer income ( which we now label Y), and the price of the related commodity ( P Z ), and we obtained the following results. (If you can, run this regression yourself; you should get results identical or very similar to those given below.) Q ˆ X = 121.86 - 9.50P X + 0.04Y - 2.21P Z (- 5.12) ( 2.18) (- 0.68) R2 = 0.9633 F = 167.33 D- W = 2.38.

(b) Evaluate the above regression results.

(c) What type of commodity is Z? Can you be sure?

12. "(a) Estimate the regression in Problem 5 based on Table 5- 6 using Excel's regression function in the Data Analysis menu. (b) Using the coefficients found in the regression estimate, enter a formula based in cells C6 through J6 to forecast the sales revenue when quality control goes from $ 2 million to $ 9 million a year. (c) Graph both the actual data and the forecast using the graphing tool. Does the forecast vary much from the actual data?

Attachment:- Assignment.rar