A Company is planning to undertake a project requiring initial investment of $50 million and is expected to generate $10 million in Year 1, $13 million in Year 2, $16 million in year 3, $19 million in Year 4 and $22 million in Year 5.

1. Calculate the payback value of the project.
2. Calculate the discount payback value of the project (i=12%).

a. What is the level of productivity in this economy?

b. What is the per-unit cost of production if the price of each input unit is $4?

c. Assume that the input price increases from $4 to $5 with no accompanying change in productivity. What is the new per-unit cost of production?

c2. In what direction would the $1 increase in input price push the economy's aggregate supply curve? (right or left)

c3. What effect would this shift of aggregate supply have on the price level and the level of real output?

d. What would be the new per-unit cost of production?

d2. In what direction would this change in per-unit production cost push the economy's aggregate supply curve? (right or left)

d3. What effect would this shift of aggregate supply have on the price level and the level of real output?

Topic Essay:

How do we explain today’s unusually low unemployment rate, at a time when the labor participation rate is not especially low?

For many years, the U.S. unemployment rate has been the main measure of the employment picture in the economy. Since the 1960s, the labor participation rate dropped steadily, until about the last decade, when it started drifting up. So in a way, the current very low U.S. unemployment rate is somewhat misleading, because it from a base of fewer working-age Americans choosing to be in the workforce.

The following questions deal with domain name registration. a) What is ICANN b) what is ICANN’s UDRP

(a) For an interest rate of 6% per annum compounded quarterly, determine (i) the annual effective interest rate, (ii) the effective rate per quarter, and (iii) the effective rate per month.

(b) Using the interest rates (i), (ii), and (iii) calculated in part a), calculate the future value of $1,000 deposit after 5 years.

(c) Using the interest rates (i), (ii), and (iii) calculated in part a), calculate the present value of $1,000 allowance you receive 5 years from now.

Recreational marijuana was legalized in the state of Washington in July of 2014 creating a new source of revenue for the government. July 1, 2015, the state government raised excise taxes paid by marijuana retailers on final sales leading to the following effects on prices and quantity sold:

The above example is adapted from a recent study into the effects of an increase in taxes on the marijuana market in Washington (Hansen, Miller, & Weber, 2017). The authors can estimate the price elasticity of demand from these data points because the sudden tax change created a ceteris paribus situation, where all other supply and demand conditions were held fixed, similar to the way our models assume in the textbook.

In that spirit, interpret the excise tax increases as an increase in input costs for marijuana dispensaries holding all other supply and demand characteristics fixed.

1. What happened to supply and the supply curve after the tax?
2. What happened to demand and the demand curve after the tax?
3. What can you say about the equilibrium quantity supplied and demanded?
4. Comparing June 2015 to July 2015, using the arc formula for price elasticity of demand: What is the price elasticity of demand? If the business didn’t have to pay the sales tax to the government, what affect would the price increase have had on their revenue?

5. Comparing June 2015 to August 2015, using the arc formula for price elasticity of demand: What is the price elasticity of demand? If the business didn’t have to pay the sales tax to the government, what affect would the price increase have had on their revenue?
6. How are the elasticities in question 4 & 5 different? What are the economic reasons driving this difference?
7. All else equal, what would you expect to happen to the price elasticity of demand if there were an additional increase in taxes. Why?

8. Choose a product or company of interest to you. Imagine your boss asks you to calculate a numerical value for the price elasticity of demand. Explain at least three different confounding factors that might make your task difficult. How might you get around those issues?

2. Would the following transactions be part of U.S. GDP, U.S. GNP, both or neither?

a. You received dividends from a company based in Germany.

b. Colin Firth, a British citizen, earns money acting in a movie made in Hollywood.

c. You buy a Volkswagen automobile which was made in Germany.

d. An American citizen works at a Honda factory in South Carolina

What is the current state of the US Economy in the last 20 years?” Your report should include the following: GPD, unemployment, inflation and Labor Force Participation Rate. Include a general statement about the state of the economy and then brief commentaries on each of the measures. You can use FRED graph for your comparison

A manufacturer of microwaves has discovered that female shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Male shoppers generally value microwaves more than women do and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto-defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $67 and one with auto-defrost at $124, while women value a simple microwave at $57 and one with auto-defrost at $67.

Suppose the manufacturer is considering three pricing strategies:

For simplicity, assume there is only 1 man and 1 woman and that if the price of a microwave is equal to an individual's willingness to pay, the individual will purchase the microwave.

Strategy

Revenue from Men

Revenue from Women

Total Revenue from Strategy

1. Auto-Defrost Microwave only at $67

2. Auto-Defrost Microwave only at $1243. Simple Microwave at $57, Auto-Defrost Microwave at $113

Suppose that, instead of one man and one woman, the market for this microwave consisted entirely of men. For simplicity, you can assume this means that there are two men, and no women.

Under these conditions, pricing strategy   would maximize revenue for the manufacturer.

Assess the validity of the following: If true, mark true; if false, explain why the statement is false.  

1. An increase in disposable income decreases the quantity demanded of inferior goods.
2. Constant elasticity demand curves imply that expenditure (or revenue) always stay the same.
3. Marginal Revenue is positive as long as Total Revenue is also positive.
4. If in a model with only two goods the MRS_{X, Y} is constant and greater than the price ratio P_X/P_Y, the consumer buys no X.
5. The law of diminishing returns does not apply if the Total Product of labor were to be linear.
6. If over the relevant range the Price Consumption Curve for good Y is parallel to the y-axis, the demand for good X is perfectly inelastic.
7. In stage I of the production process, Total Product always increases at an increasing rate.

Discuss the relationship between the neutrality (and super-neutrality) of money and the quantity theory of money. Does either of them imply the other?

Provide your perspective on the following: What are the main characteristics of a perfectly competitive market that cause buyers and sellers to be price takers? Explain. How “perfectly” competitive do you think are the following markets: (1) stock market, (2) bond market, (3) foreign exchange market, (4) world sugar market, and (5) world oil market? Explain.

1. Which of the following is a positive statement?

   	A.	The level of income inequality has become too large in the U.S.
   	B.	An increase in the minimum wage would result in increased teenage unemployment.
   	C.	Stricter immigration laws are needed in the U.S.
   	D.	The government should expand the earned income tax credit program because many workers choose not to work.
   	E.	An increase in the minimum wage would make the distribution of income more fair.

2 points   

QUESTION 2

1. If the number of workers in an industry rises, the equilibrium wage will:

   	A.	remain the same.
   	B.	increase.
   	C.	change in an unpredictable manner.
   	D.	decrease.

2 points   

QUESTION 3

1. If some workers get discouraged and leave the labor force, the labor force participation rate will:

   	A.	fall.
   	B.	rise.
   	C.	remain the same.
   	D.	change in an unpredictable manner.

2 points   

QUESTION 4

1. The official unemployment rate may overstate the cost of unemployment because ______________ are sometimes counted as being unemployed.

   	A.	workers who are working "off-the-books"
   	B.	discouraged workers
   	C.	all teenagers
   	D.	part-time workers who prefer to work part-time

2 points   

QUESTION 5

1. If leisure is a normal good, an increase in the level of non-labor income will:

   	A.	lower the reservation wage for most workers.
   	B.	shift the budget constraint inward toward the origin.
   	C.	cause the budget constraint to become steeper.
   	D.	reduce the quantity of labor supplied.
   	E.	cause indifference curves to become flatter.

2 points   

QUESTION 6

1. During a recession, the labor force participation rate generally:

   	A.	is as likely to rise as it is to fall.
   	B.	falls.
   	C.	remains unchanged.
   	D.	rises.