In: Economics

**4. Suppose that fixed cost for a firm in the automobile
industry (start up costs of factories,**

**capital equipment, and so on) is $5 Billion and that the
variable cost is $17,000 for each automobile produced. Because more
firms increase competition in the market, the market price falls as
more firms enter an automobile industry, or specifically, P =
17,000 + (150/n), where n represent the number of firms in the
industry. Assume that the initial size of the automobile industry
in the US and UK are 300 million and 533 million people
respectively**

**a. Calculate the equilibrium number of firms in the US
market and the European market in**

**Autarky.**

**b. What is the equilibrium price in each
country?**

**c. Now suppose the US and Europe decide to trade, which
adds the 533 million European demand to the US’ 300 million, how
many firms will there be in Europe and the US combined? What is the
new equilibrium quantity?**

**d. Why are prices different in the US in b and c above?
Are consumers better or worse off? And why?**

Your firm is considering a project with no start-up costs that
will generate $1 million in FCF forever, starting in one year. Your
debt-to-equity ratio is 1, your equity-holders require a return of
12%, and your debt-holders require a return of 8%. The tax rate is
20%. Using the Adjusted Present Value method, compute the unlevered
value of the project, the value of the tax shield (assuming you
maintain your current leverage ratio), and the levered value of the
project....

Suppose a company has fixed costs of $47,600 and variable cost
per unit of 4/9x + 333 dollars,
where x is the total number of units produced. Suppose
further that the selling price of its product is
1767 −5/9x dollars per unit.
(a) Find the break-even points. (Enter your answers as a
comma-separated list.)
x =
(b) Find the maximum revenue. (Round your answer to the nearest
cent.)
$
(c) Form the profit function P(x) from the cost
and...

Suppose a company has fixed costs of $48,000 and variable cost
per unit of
4
9
x + 333 dollars,
where x is the total number of units produced. Suppose
further that the selling price of its product is
2357 −
5
9
x dollars per unit.
(a) Find the break-even points. (Enter your answers as a
comma-separated list.)
x =
(b) Find the maximum revenue. (Round your answer to the nearest
cent.)
$
(c) Form the profit function P(x)...

definition
1. cost
2. variable costs
4. fixed costs
5.

If you were a start-up business, would you rather have high
fixed costs and a low contribution margin or low fixed costs and a
high contribution margin? Alternatively, as you became a more
mature company, which would be your better choice?
Give an example to support your conclusion.

Question 4.
Suppose that your firm has higher fixed cost-to-variable cost
ratio than comparable firms. Explain how EBITDA multiple valuation
would be influenced by the difference in this ratio.

1) In a monopolistically competitive industry, the typical firm
has fixed cost of 20 and constant marginal cost of 1. The average
cost curve of the typical firm is then AC = 1 + 20/Q. Prior to
trade each firm has the following demand curve, Q = 60 - 20P.
a. Find the profit maximizing level of output and the price
charged by the typical firm prior to trade. Determine average cost
and profits.
b. After trade is opened, each...

. Suppose that each firm in a competitive industry has the
following costs: TC = 100 + ???? 2 MC = 2???? Where ???? is an
individual firm’s quantity produced. The market demand curve for
this product is ????=100-P Currently, there are 10 firms in the
market.
A. At what quantity is ATC curve at its minimum?
B. Give the equation for each firm’s supply curve for the
short-run and for the long-run.
C. Give the equation for the market...

You have a new start-up firm. You think that the value of your
start-up is around $60 million, but you will need to do a serious
NPV analysis before you know the precise value. You are planning to
have a 50% debt-to-value ratio, and that you will continuously
rebalance to maintain this leverage. You have information on two
other companies. The names of these companies are “Comp A” and
“Comp B”. Comp A has the same business risk as your...

Suppose that each firm in a competitive industry has the
following costs:
Total Cost:
TC=50+12q2TC=50+12q2
Marginal Cost:
MC=qMC=q
where qq is an individual firm's quantity produced.
The market demand curve for this product is:
Demand
QD=160−4PQD=160−4P
where PP is the price and QQ is the total quantity of the
good.
Each firm's fixed cost is $50.
What is each firm's variable cost?
A: 1/2q^2
Which of the following represents the equation for each firm's
average total cost?
A: 50/q +...

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