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Questions and Answers of Economics

Consider the following two mutually exclusive alternatives: Alternative B may be replaced with an identical item every 20 years at the same $150 cost and will have the same $24 uniform annual
Some equipment will be installed in a warehouse that a firm has leased for 7 years. There are two alternatives:At any time after the equipment is installed, it has no salvage value. Assume that
A pump is required for 10 years at a remote location. The pump can be driven by an electric motor if a power line is extended to the site. Otherwise, a gasoline engine will be used. Use an annual
The town of Dry Gulch needs an additional supply of water from Pine Creek. The town engineer has selected two plans for comparison: a gravity plan (divert water at a point 10 miles up Pine Creek and
Uncle Elmo needs to replace the family privy. The local sanitary engineering firm has submitted two alternative structural proposals with respective cost estimates as shown. Which construction should
The manager in a canned food processing plant is trying to decide between two labeling machines. Their respective costs and benefits are as follows: Assume an interest rate of 12%. Use annual cash
Carp, Inc. wants to evaluate two methods of shipping their products. The following cash flows are associated with the alternatives: Use an interest rate of 15% and annual cash flow analysis to decide
A college student has been looking for a new tire for his car and has located the following alternatives: The student feels that the warranty period is a good estimate of the tire life and that a 10%
Consider the following three mutually exclusive alternatives: Assuming that Alternatives B and C are replaced with: identical replacements at the end of their useful lives. and an 8% interest rate,
A new car is purchased for $12,000 with a 0% down. 9% loan the loan's length is 4 years. After making 30 payments, the owner desires to payoff the loan's remaining balance. How much is owed?
A year after buying her car, Anita has been offered a job in Europe. Her car load is for $15,000 at a 9% nominal interest rate for 60 months. If she can sell the car for $12,000, how much does she
A $78,000 mortgage has a 30-year term and a 9% nominal interest rate.(a) What is the monthly payment?(b) After the first year of payments, what is the outstanding balance?(c) How much interest is
A $92,000 mortgage has a 30-year term and a 9% nominal interest rate.(a) What is the monthly payment?(b) After the first year of payments, what fraction of the loan has been repaid?(c) After the
A 30-year mortgage for $95,000 is issued at a 9% nominal interest rate.(a) What is the monthly payment?(b) How long does it take to pay off the mortgage, if $1000 per month is, paid?(c) How long does
A 30-year mortgage for $145,000 is issued at a 6% A nominal interest rate.(a) What is the monthly payment?(b) How long does it take to payoff the mortgage, if $1000 per month is paid?(c) How long
Solve Problem 6-32 for the breakeven first cost per kilometer of going under the lake.
Redo Problem 6-38 to calculate the EUAW of the alternatives as a function of miles driven per year to see if there is a crossover point in the decision process. Graph your results.
Set up Problem 6-18 on a spreadsheet to make all the input data variable and determine various scenarios which would make the bailer economical.
Develop a spreadsheet to solve Problem 6-44. What A is the breakeven cost of the additional pumping investment in year 10?
Suppose nominal GDP in 2005 was $14 trillion, and in 2006 it was $15 trillion. The general price index in 2005 was 100, and in 2006 it was 103. Between 2005 and 2006, real GDP rose by what percent
What is the maximum amount you would pay for an asset that generates an income of $150,000 at the end of each of five years if the opportunity cost of using funds is 9 percent?
Suppose that the total benefit and total cost from an activity are, respectively, given by the following equations: B(Q) = 150 + 28Q – 5Q2 and C(Q) = 100 + 8Q. (Note: MB(Q) = 28 – 10Q and MC(Q) =
A firm’s current profits are $550,000. These profits are expected to grow indefinitely at a constant annual rate of 5 percent. If the firm’s opportunity cost of funds is 8 percent, determine the
Complete the following table and answer the accompanying questions. a. At what level of the control variable are net benefits maximized? b. What is the relation between marginal benefit and marginal
It is estimated that over 90,000 students will apply to the top 30 M.B.A. programs in the United States this year.a. Using the concept of net present value and opportunity cost, explain when it is
Jaynet spends $20,000 per year on painting supplies and storage space. She recently received two job offers from a famous marketing firm—one offer was for $100,000 per year, and the other was for
Suppose the total benefit derived from a given decision, Q, is B(Q) = 25Q – Q2 and the corresponding total cost is C(Q) = 5 + Q2, so that MB(Q) = 25 – 2Q and MC(Q) = 2Q.a. What is total benefit
An owner can lease her building for $100,000 per year for three years. The explicit cost of maintaining the building is $35,000, and the implicit cost is $50,000. All revenues are received, and costs
You’ve recently learned that the company where you work is being sold for $275,000. The company’s income statement indicates current profits of $10,000, which have yet to be paid out as
You are in the market for a new refrigerator for your company’s lounge, and you have narrowed the search down to two models. The energy efficient model sells for $500 and will save you $25 at the
You are the human resources manager for a famous retailer, and you are trying to convince the president of the company to change the structure of employee compensation. Currently, the company’s
Tara is considering leaving her current job, which pays $56,000 per year, to start a new company that manufactures a line of special pens for personal digital assistants. Based on market research,
Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity.
As a marketing manager for one of the world??s largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared
The head of the accounting department at a major software manufacturer has asked you to put together a pro forma statement of the company’s value under several possible growth scenarios and the
Suppose one of your clients is four years away from retirement and has only $1,500 in pretax income to devote to either a Roth or a traditional IRA. The traditional IRA permits investors to
You are the manager in charge of global operations at Bank Global??a large commercial bank that operates in a number of countries around the world. You must decide whether or not to launch a new
According to The Wall Street Journal, merger and acquisition activity in the first quarter rose to $5.3 billion. Approximately three-fourths of the 78 first-quarter deals occurred between information
Brazil points to its shrimp-farming industry as an example of how it can compete in world markets. One decade ago, Brazil exported a meager 400 tons of shrimp. Today, Brazil exports more than 58,000
You are the manager of Local Electronics Shop (LES), a small brick-and-mortar retail camera and electronics store. One of your employees proposed a new online strategy whereby LES lists its products
Two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6,000
1. What is the value of a preferred stock that pays a perpetual dividend of $75 at the end of each year when the interest rate is 4 percent?2. Levi Strauss & Co. paid $46,532 for a 110-year-old pair
The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name “Y.”Good Y is an inferior good.a. How will the
The X-Corporation produces a good (called X) that is a normal good. Its competitor, Y-Corp., makes a substitute good that it markets under the name “Y.”Good Y is an inferior good.a. How will the
Good X is produced in a competitive market using input A. Explain what would happen to the supply of good X in each of the following situations:a. The price of input A increases.b. An excise tax of
Suppose the supply function for product X is given by Qsx = – 50 + 0.5Px – 5Pz.a. How much of product X is produced when Px = $500 and Pz = $30?b. How much of product X is produced when Px = $50
The demand for good X is given by Research shows that the prices of related goods are given by Py = $5,900 and Pz = $90, while the average income of individuals consuming this product is M =
The demand curve for product X is given by Qdx = 460 = 4Px.a. Find the inverse demand curve.b. How much consumer surplus do consumers receive when Px = $35?c. How much consumer surplus do consumers
Suppose demand and supply are given by Qd = 50 – P and Qs = ½ P – 10.a. What are the equilibrium quantity and price in this market?b. Determine the quantity demanded, the quantity supplied, and
Suppose demand and supply are given by a. Determine the equilibrium price and quantity. Show the equilibrium graphically.b. Suppose a $6 excise tax is imposed on the good. Determine the new
Use the accompanying graph to answer these questions.a. Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price? b. Suppose
The supply curve for product X is given by Qsx = – 340 + 10Px.a. Find the inverse supply curve.b. How much surplus do producers receive when Qx = 350? When Qx = 1,000?
Consider a market where supply and demand are given by Qsx = – 10 + Px and Qdx = 56 – 2Px. Suppose the government imposes a price floor of $25, and agrees to purchase any and all units consumers
You are the manager of a midsized company that assembles personal computers. You purchase most components—such as random access memory (RAM)—in a competitive market. Based on your marketing
You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete
You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. Arecent report indicates that nearly 50 Americans contract HIV
As a result of increased tensions in the Middle East, oil production is down by 1.21 million barrels per day—a 5 percent reduction in the world’s supply of crude oil. Explain the likely impact of
You are an assistant to a senator who chairs an ad hoc committee on reforming taxes on telecommunication services. Based on your research, AT&T has spent over $15 million on related paperwork and
From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on non-customers who make $10 million in withdrawals
Rapel Valley in Chile is renowned for its ability to produce high-quality wine at a fraction of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of
Viking InterWorks is one of many manufacturers that supplies memory products to original equipment manufacturers (OEMs) of desktop systems. The CEO recently read an article in a trade publication
Seventy-two percent of the members of the United Food and Commercial Workers Local 655 voted to strike against Stop ’n Shop in the St. Louis area. In fear of similar union responses, two of Stop
Florida, like several other states, has passed a law that prohibits “price gouging” immediately before, during, or after the declaration of a state of emergency. Price gouging is defined as “.
In a recent speech, the governor of your state announced: “One of the biggest causes of juvenile delinquency in this state is the high rate of unemployment among 16 to 19 year olds. The low wages
1. Some have argued that higher cigarette prices do not deter smoking. While there are many arguments both for and against this view, some find the following argument to be the most persuasive of
Answer the following questions based on the accompanying diagram.a. How much would the firm??s revenue change if it lowered price from $12 to $10? Is demand elastic or inelastic in this range?b. How
The demand curve for a product is given by Q x = 1,000 – 2Px + .02Pz, where Pz = $400.a. What is the own price elasticity of demand when Px = $154? Is demand elastic or inelastic at this price?
Suppose the demand function for a firm’s product is given by In Qdx = 3 – 0.5 In Px – 2.5 In Py + In M + 2 In AwherePx = $10,Py = $4,M = $20,000, andA = $250.a. Determine the own price
Suppose the own price elasticity of demand for good X is – 2, its income elasticity is 3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is –6.
Suppose the cross-price elasticity of demand between goods X and Y is –5. How much would the price of good Y have to change in order to increase the consumption of good X by 50 percent?
You are the manager of a firm that receives revenues of $30,000 per year from product X and $70,000 per year from product Y. The own price elasticity of demand for product X is –2.5, and the
A quant jock from your firm used a linear demand specification to estimate the demand for its product and sent you a hard copy of the results. Unfortunately, some entries are missing because the
Suppose the true inverse demand relation for good X is P = a + bQ + e, and you estimated the parameters to be â = 10, b = – 2.5, σa = 1, and σb = 0.5. Find the approximate 95 percent confidence
The demand function for good X is Qdx = a + bPx + cM + e, where Px is the price of good X and M is income. Least squares regression reveals that a = 5.25, b = ?? 1.36 c = ??0.14, σa = ?? 6.19. σa =
The demand function good X is ln Qdx = a + b ln Px + c ln M+e, where Px is the price of good X and M is income. Least squares regression reveals that â = 5.25, b = – 1.36, and c = – 0.14.a. If M
Revenue at a major cellular telephone manufacturer was $1.4 billion for the nine months ending March 2, up 97 percent over revenues for the same period last year. Management attributes the increase
You are the manager of a firm that sells a leading brand of alkaline batteries. A file named Q12.xls with data on the demand for your product is available online at www.mhhe.com/baye7e. Specifically,
For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 2 percent. If, as a result of this price increase, the volume of all cereal sold by Big G dropped
If Starbucks’s marketing department estimates the income elasticity of demand for its coffee to be 1.75, how will looming fears of a recession (expected to decrease consumers’ incomes by 4
You are a division manager at Toyota. If your marketing department estimates that the semiannual demand for the Highlander is Q = 100,000 – 1.25P, what price should you charge in order to maximize
You are a manager in charge of monitoring cash flow at a company that makes photography equipment. Traditional photography equipment comprises 80 percent of your revenues, which grow about 2 percent
As newly appointed “Energy Czar,” your goal is to reduce the total demand for residential heating fuel in your state. You must choose one of three legislative proposals designed to accomplish
As the owner of Barney??s Broilers??a fast-food chain??you see an increase in the demand for broiled chicken as consumers become more health conscious and reduce their consumption of beef and fried
Suppose the Kalamazoo Brewing Company (KBC) currently sells its microbrews in a seven-state area: Illinois, Indiana, Michigan, Minnesota, Mississippi, Ohio, and Wisconsin. The company’s marketing
According to CNN, two dairy farmers challenged the legality of the funding of the “Got Milk?” campaigns. They argued that the “Got Milk?” campaigns do little to support milk from cows that
A few years ago, the Federal Communications Commission (FCC) eliminated a rule that required Baby Bells to provide rivals access and discounted rates to current broadband facilities and other
Recently, Pacific Cellular ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area
The owner of a small chain of gasoline stations in a large Midwestern town read an article in a trade publication stating that the own-price elasticity of demand for gasoline in the United States is
A consumer has $400 to spend on goods X and Y. The market prices of these two goods are Px = $10 and Py = $40.a. What is the market rate of substitution between goods X and Y?b. Illustrate the
A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5.a. What is the price of good Y?b. What is the consumer??s income?c. At point A, how many units of good X
A consumer must divide $250 between the consumption of product X and product Y. The relevant market prices are Px = $5 and Py = $10.a. Write the equation for the consumer’s budget line.b.
In the answer to Demonstration Problem 4–2 in the text, we showed a situation in which a gift certificate leads a consumer to purchase a greater quantity of an inferior good than he or she would
Provide an intuitive explanation for why a “buy one, get one free” deal is not the same as a “half-price” sale.
In the below figure, a consumer is initially in equilibrium at point C. The consumer??s income is $300, and the budget line through point C is given by $300 = $50X + $100Y. When the consumer is given
A consumer must spend all of her income on two goods (X and Y). In each of the following scenarios, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume
A consumer’s budget set for two goods (X and Y) is 500 ≥ 2X + 4Y.a. Illustrate the budget set in a diagram.b. Does the budget set change if the prices of both goods double and the consumer’s
A worker views leisure and income as “goods” and has an opportunity to work at an hourly wage of $10 per hour.a. Illustrate the worker’s opportunity set in a given 24-hour period.b. Suppose the
It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes,
The U.S. government spends over $15.8 billion on its Food Stamp Program to provide millions of Americans with the means to purchase food. These stamps are redeemable for food at over 160,000 store
A recent newspaper circular advertised the following special on tires: “Buy three, get the fourth tire for free—limit one free tire per customer.” If a consumer has $500 to spend on tires and
Upscale hotels in the United States recently cut their prices by 20 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research

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