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Jon Mitchell runs a small, very stable newspaper company in northern Georgia. The paper has been in business for 23 years. The total value of the firm's stock is $2 million, which Jon owns outright. This year the firm earned a total of $500,000 after out-of pocket expenses. Without taking the opportunity cost of capital into account, this means that Jon is earning 25 percent return on his capital. Suppose that risk-free bonds are currently paying a rate of 10 percent to those who buy is them.
a. What meant by the "opportunity cost of capital"?
b. Explain why opportunity costs are "real" even though they do not necessarily involve out-of-pocket expenses.
c. What is the opportunity cost of Jon's capital?
d. How much excess profit is Jon earning?
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Assume the price level is fixed in the short run so that the economy does not reach a general equilibrium immediately after a change in the economy. For each of the changes what are the short-run effects on the real interest rate and output
Using algebra find out the effects of this change in cost on profit maximizing output and the optimal profit.
The demand for coffee is assumed to be P = 15 - Q (units don't matter here.) The domestic supply of coffee is P = 2 * Q. The world market price of coffee is 5. Using graphs, show who gains and who loses and by how much (both for losers and winners..
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The supply curve for labor is S L = 100W, where W is the market wage. The marginal revenue product curve for the firm is D L = -50W + 450.
Consider demand and supply curves for many markets - the market for mineral resources, the market for wheat, the market for sugar, and market for motor homes.
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The average weekly earnings of bus drivers in a city are $950 with a standard deviation of $45. Assume that we select a random sample of 81 bus drivers.
Why has the Federal Reserve selected this policy at this time? What efects does the Federal Reserve expect this policy to have on the U.S. economy?
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