PX = $9500   PY = $10000   I = $15000   A = $170000   W = 160
This function is:
       Qs = 89830 -40PS +20PX +15PY +2I +.001A +10W

1. Use the above to calculate the arc price elasticity of demand between PS = $8000 and PS = $7000. The arc elasticity formula is:
Ep= Q/P8 * P1+P1/Q1+Q2
  
2. Calculate the quantity demanded at each of the above prices and revenue that will result if the quantity is sold (fill in table below).  
PS     QS   Revenue
$8000      
$7000      

3.   Marketing suggests lowering the price PS from $8000 to $7000. The size of the elasticity coefficient in #1 should tell you what is likely to happen to revenue. Explain why this is (or is not) a good marketing suggestion from a revenue viewpoint (note: your answer in #1 and the calculations in #2 should be giving the same message). If the implications in #1 and #2 differ, does the difference make sense (or did you make a mistake in #1 or #2)?

4.   Calculate the point price elasticity of demand for Smooth Sailing boats at PS = $8000 (which should make QS = 141600). Does this elasticity value indicate that demand for Smooth Sailing boats is relatively elastic? Explain why or why not. The formula is:
Qs/Px *Ps/Qs

5.   Calculate the point cross-price elasticity of demand between Qs and Px with Px = $9500. Use Qs corresponding to Ps = 8000. Other variables and their values are as given at the top, before question #1. Does this elasticity indicate that the demand for Smooth Sailing’s boats is relatively responsive to changes in Px? Explain why or why not. The formula is:

Esx= QS/Px*Px/Qs

6. Calculate the point cross-price elasticity of demand between QS and Py, given that Py = 10000 and that PS = $7500 (thus QS should equal 161,600). Other variables are as given at the top before #1. Does this elasticity indicate that the demand for Smooth Sailing boats is relatively responsive to changes in Py? Explain why or why not. The formula is:
Esy= Qs/Py *Py/Qs

Using applicable models, do a critical analysis of permanent income hypothesis and random walk models and the difference between the two model

1. The long-run cost function for LeAnn's telecommunication firm is: C(q)=0.03q². A local telecommunication tax of $0.01 has been implemented for each unit LeAnn sells. This implies the marginal cost function becomes: MC(q,t)=0.06q+t
   1. If LeAnn can sell all the units she produces at the market price of $0.70, calculate LeAnn's optimal output before and after the tax.
   2. What effect did the tax have on LeAnn's output level?
   3. How did LeAnn's profits change?

3. One

1. One of the basic principles of classical growth theory is that over time, levels of economic activity should converge in most countries and that we would enjoy equal levels of prosperity. While we view some evidence of convergence, we also observe the continuation of stark and deep levels of global inequality

1. In one small paragraph, use our production function analysis to explain why we might predict economic convergence.
2. In an additional paragraph, use our production function analysis to explain why we might not be experiencing convergence.
3. What country are you a citizen of (UNITED STATES)? Use the growth theory you have used in your previous answer to explain whether you are part of a country that is either:

1. Catching up to advanced capitalist countries,

2. Being caught up to by more rapidly growing countries, or

3. Still experiencing a big gap in living standards with no immediate prospects of catching up.

Briefly explain why the country you are a citizen of falls into the category you have chosen.

Why did Latin American countries in the latter half of the 19th century enter “neocolonial,” economically dependent relationships with European powers?

4. Suppose we have a market for coffee and pastries.

a. Graph the market (no need to give numbers for endpoints of the budget constraint) and show an optimal consumption bundle.

b. Suppose the price of coffee drops. Graph the new budget constraint.

c. Now, illustrate the INCOME and SUBSTITUTE effects of the price change and show the new optimum. Remember, you must draw the imaginary budget constraint and then find the tangency on the new budget constraint.

A large manufacturing company in Jubail is considering an electric power plant project in order to save on their electric power consumption by generating its own power supply. The company currently uses 552,000 kW of electric energy a year and pays an average of $3.05 per kwh. The construction of the power plant would require an initial cost of $1,600,000 now plus an additional $950,000 investment at the end of the first year. It is expected to be operational for 10 years with an estimated residual value of $160,000 at the end of the 11th year. Since the installation of the project would take about one year, the annual benefit (in terms of savings) as well as the annual costs would occur only starting at the end of the second year. At that time, the annual operation and maintenance cost is estimated at $750,000 and expected to increase by 5% annually until the end of its useful life. As the capacity of the power plant would be more than adequate what the company needed, the excess energy could be supplied to the neighboring establishments from the fifth year up to the end of the productive life of the project, thereby creating an additional income of $105,000 per year.
Suppose MARR=15%, evaluate this project proposal using all relevant and applicable project assessment tools and techniques. Based on the analysis results, write a detailed recommendation report explaining and justifying your decision whether the project proposal should be accepted or rejected.

An industry's inverse demand was P^D = 20 - 0.1Q and its inverse supply was P^S = 4 + 0.1Q.

1. Calculate the consumer surplus, producer surplus, government revenue and deadweight loss for taxes of $4, $8, $12 and $16 per unit sold.

2. Graph government revenue and deadweight loss as functions of these tax rates.

3. What tax maximizes government revenue?

All firms in an industry are identical with fixed costs (FC) of $160 and variable costs (VC) of

$22q + 0.1q^2

1. What is the equation of average variable costs?

2. What is the equation of average total costs?

3. What is the equation of marginal costs?

4. At what level of output are average total costs at their minimum?

5. At what level of output are average variable costs at their minimum?

6. What is the equation of this firm’s short-run supply curve?

Explain all answers

1. Suppose price-taking firms have cost functions given by C(q) = 90 + 5q + 0.025q .

1. What are the equations of marginal costs and average costs?

2. How much would the firm produce at prices of $9, $10, $11, and $12?

3. How much profit would the firm earn at prices of $9, $10, $11, and $12?

4. Graph the MC, AC. Indicate the profits at a price of $9 per unit.

5. What price would be charged in the perfect competitive equilibrium?

Explain answers.

Your company is considering expanding by opening new representative offices in the European Union (EU). Nevertheless, the size of the investment is significant and top management wishes to have a clearer picture of the current and probably future economic status of the EU. Work out an executive summary describing the features you consider as crucial in making such a decision.

13. Firms in a perfectly competitive firm make 0 economic profit in the long run.

True or False

14. A firm in a perfectly competitive market, finds that it's MR = MC occurs at Q = 100, at which point the market Price is $8. The firm's ATC = AFC+AVC = $6; Is the firm making a profit or loss at this point of production?

a.Loss of $200

b.profit of $600

C.loss of $600

D. profit of $200

15. A perfectly elastic demand curve has an elasticity of

a. infinity

b. 0

c. 1

d. 100

16. The Cross-Price elasticity of demand Between X and Y will always be negative if the goods are Complements.

True or False