Suppose an economy has three states: boom, normal, and recession. Assume that the probability of a boom state is 0.2, a normal state is 0.5, and a recession state is 0.3. And there are three stocks in this economy, called Alpha, Beta, and Gamma respectively. The return performance of these stocks has been summarized by the following table:

(Please show your intermediate processes, instead of just a final number for your answers. Only round your final answers to two decimal places.)

(a) What is the expected return of Stock Alpha?

(b) What is the variance of Stock Beta?

(c) What is the standard deviation of Stock Gamma?

(d) Suppose you build a portfolio by including these three stocks. The weight of Stock Alpha in your portfolio is 0.2, the weight of Stock Beta is 0.3, and the weight of Stock Gamma is 0.5. What are the expected return, variance, and standard deviation of your portfolio?

(e) Based on what you observe from the calculations and what you learned from the class, could you specify what are the characteristics of portfolios?

Your utility function is U = 10 X 0.1Y 0.7 and your marginal utility functions are MUx=X^−0.9 Y^ 0.7 MUy=7X^ 0.1 Y^−0.3

Your budget is M and the prices of the two goods are pX and pY .

1. a) Write down the two conditions for utility maximization subject to a budget constraint.

2. b) Derive the demand functions for X and Y .

3. c) Based on your demand functions explain whether:

   • - Y is a normal good or an inferior good and why. (1 mark)

   • - good X satisfies the law of demand. (1 mark)

4. d) Assume you currently have 42 units of Y and 3 units of X . How many units of Y are you

   willing to give up for an additional unit of X while holding your total utility constant? (1 mark)

Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,240 units. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:

Note: Assume that half of lot size is in inventory on average (1,240/2 = 620 units).

Two qualified suppliers have submitted the following quotations:

Your assistant has obtained the following freight rates from your carrier:

Note: Per ton-mile = 2,000 lbs. per mile.

a-1. Calculate the total cost for each supplier. (Round your answers to the nearest whole number.)

a-2. Which supplier would you select?

b-1. If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier. (Do not round intermediate calculations. Round "Required lot size for truckload" and final answers to the nearest whole number.)

HINT: Use (full) truckload cost rates and the lowest (feasible) unit cost for all calculations. For example, if there are 8.3 orders per year, don’t split the 8.3 orders into 8 full truckloads and 0.3 less-than-truckloads - use the full truckload rate for all 8.3 orders. For annual purchase cost, don’t use two different unit costs for the 8 complete orders and the 0.3 partial orders – use the lowest (feasible) unit cost for all 8.3 purchase orders based on the lot size needed for a full truckload.

b-2. Would your supplier selection change?

Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your answers to 2 decimal places. Input all amounts as positive values.)

If x is a binomial random variable, compute the mean, the standard deviation, and the variance for each of the following cases:

(a)  n=4,p=0.4n=4,p=0.4
μ=
σ2=
σ=

(b)  n=3,p=0.2n=3,p=0.2
μ=
σ2=
σ=

(c)  n=3,p=0.6n=3,p=0.6
μ=
σ2=
σ=

(d)  n=6,p=0.7n=6,p=0.7
μ=
σ2=
σ=

Given the monthly returns that follow, find the R2, alpha, and beta of the portfolio. Compute the average return differential with and without sign. Do not round intermediate calculations. Round your answers to two decimal places. Month Portfolio Return S&P 500 Return January 5.8 % 6.0 % February -2.4 -3.3 March -1.9 -1.3 April 2.4 1.6 May 0.5 0.2 June -1.0 -0.6 July 0.2 0.4 August 1.4 1.9 September -0.5 -0.3 October -3.5 -3.8 November 2.5 1.9 December 0.4 0.0

R2:

Alpha: %

Beta:

Average return difference (with signs): %

Average return difference (without signs) %

1. Identify the various hidden costs mentioned in the article.

2. Identify a sunk cost trap in the article might be one or a couple.

Bonus: Identify other interesting concepts!

After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone. An exploration of the startling, sustainable, just-getting-started return of industry to the United States.

For much of the past decade, General Electric’s storied Appliance Park, in Louisville, Kentucky, appeared less like a monument to American manufacturing prowess than a memorial to it.

The very scale of the place seemed to underscore its irrelevance. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday. The vast majority of the lot’s spaces were empty; the traffic lights looked forlorn.

In 1951, when General Electric designed the industrial park, the company’s ambition was as big as the place itself; GE didn’t build an appliance factory so much as an appliance city. Five of the six factory buildings were part of the original plan, and early on Appliance Park had a dedicated power plant, its own fire department, and the first computer ever used in a factory. The facility was so large that it got its own ZIP code (40225). It was the headquarters for GE’s appliance division, as well as the place where just about all of the appliances were made.

By 1955, Appliance Park employed 16,000 workers. By the 1960s, the sixth building had been built, the union workforce was turning out 60,000 appliances a week, and the complex was powering the explosion of the U.S. consumer economy.

The arc that followed is familiar. Employment kept rising through the ’60s, but it peaked at 23,000 in 1973, 20 years after the facility first opened. By 1984, Appliance Park had fewer employees than it did in 1955. In the midst of labor battles in the early ’90s, GE’s iconic CEO, Jack Welch, suggested that it would be shuttered by 2003. GE’s current CEO, Jeffrey Immelt, tried to sell the entire appliance business, including Appliance Park, in 2008, but as the economy nosed over, no one would take it. In 2011, the number of time-card employees—the people who make the appliances—bottomed out at 1,863. By then, Appliance Park had been in decline for twice as long as it had been rising.

Yet this year, something curious and hopeful has begun to happen, something that cannot be explained merely by the ebbing of the Great Recession, and with it the cyclical return of recently laid-off workers. On February 10, Appliance Park opened an all-new assembly line in Building 2—largely dormant for 14 years—to make cutting-edge, low-energy water heaters. It was the first new assembly line at Appliance Park in 55 years—and the water heaters it began making had previously been made for GE in a Chinese contract factory.

On March 20, just 39 days later, Appliance Park opened a second new assembly line, this one in Building 5, to make new high-tech French-door refrigerators. The top-end model can sense the size of the container you place beneath its purified-water spigot, and shuts the spigot off automatically when the container is full. These refrigerators are the latest versions of a style that for years has been made in Mexico.

Use the data below to test whether the average deposits of customers have increased since the change. Use 0.05 as the level of significance. Note that the difference in Deposits is already calculated as Increase in Deposits.

Deposit After 30.6 18.1 19.3 31.0 21.9 21.3 24.1 18.4 19.6 18.9 30.6 19.3 29.0 21.7 18.6 20.4 27.6 26.7 27.7 19.8 19.3 20.1 18.2 18.5 25.3 30.8 30.1 23.6 30.1 23.8 25.3 26.0 25.4 31.9 26.2 29.6 19.1 25.6 23.0 18.9 21.9 25.3 25.9 30.0 20.7 30.4 31.6 28.5 20.6 20.6 27.6 30.0 27.8 22.2 20.4 19.2 21.2 24.0 19.0 22.2 31.7 27.5 19.1 21.3 20.7 20.3 29.8 31.6 26.6 25.8 27.9 18.5 27.7 22.2 20.1 28.9 18.4 28.9 21.3 22.5 31.3 22.3 20.4 25.9 23.9 21.3 23.2 22.2 18.7 19.3 28.5 22.6 22.9 26.4 29.4 21.7 19.9 19.5 27.4 28.9 31.3 25.3 27.1 22.9 29.6 25.8 28.7 26.9 29.3 23.1 20.5 18.0 18.6 23.7 25.9 29.2 28.6 22.8 27.7 27.0 25.1 25.5 25.8 25.6 30.2 31.7 26.2 30.2 31.2 30.1 21.9 28.2 27.1 26.5 21.0 27.2 26.3 29.2 26.4 22.6 18.6 25.8 18.6 27.4 32.0 25.6 30.6 18.3 18.8 18.8 18.8 22.0

Increase in Deposits 4.3 -6.3 1.9 7.7 4.4 5.7 -0.2 -1.6 -1.4 4.6 15.5 -5.5 3.4 0.1 -4.1 1.3 2.7 11.1 4.8 -3.3 0.1 5.3 -1.4 4.1 -1.0 7.6 5.8 2.9 6.7 -1.6 5.6 3.9 2.5 12.5 9.7 9.5 3.8 0.1 0.0 -2.7 2.8 5.0 1.3 15.7 -3.7 5.8 13.4 2.3 1.6 -6.0 7.6 11.0 8.1 6.0 -1.8 -7.4 -4.7 7.0 -7.9 -0.1 15.4 5.6 4.7 7.2 -2.4 -4.4 12.3 11.5 8.1 6.6 6.4 3.6 9.6 -4.1 -2.5 4.8 -4.0 11.8 6.5 2.8 13.8 8.2 3.2 7.6 6.4 4.6 -0.5 4.9 2.0 -6.5 8.7 -2.9 -3.0 5.3 8.5 -2.7 -3.0 -4.5 1.8 12.5 16.6 6.0 9.5 6.2 3.5 -0.7 11.4 4.9 13.1 0.7 5.7 2.8 -7.7 0.2 4.5 14.9 2.7 -2.8 11.0 1.1 8.1 2.4 0.4 1.0 11.3 10.3 0.7 15.6 9.1 10.8 5.6 10.2 10.2 3.3 -2.3 5.1 8.6 7.1 3.5 0.3 -4.6 11.5 4.5 12.1 9.8 5.9 14.9 -7.2 -5.0 -2.2 -2.5 -4.3

MARGINAL ANALYSIS - Economics for Business Decision

You are a business owner of a firm that services trucks. A customer would like to rent a truck from you for one week, while you service his truck. You must decide whether or not to rent him a truck. You have an extra truck that you will not use for any other purpose during this week. This truck is leased for a full year from another company for $350/ week plus $.50 for every mile driven. You also have paid an annual insurance premium, which costs $70/ week to insure the truck. The truck has a full 100-gallon fuel tank. The customer has offered you $500 to rent the truck for a week. The price includes the 100 gallons of fuel that is in the tank. It also includes up to 500 miles of driving. The customer will pay $.50 for each additional mile that he drives above the 500 miles. You anticipate that the customer will bring back the truck with an empty fuel tank and will have driven more than 500 miles. You sell fuel to truckers at a retail price $3.35/gallon. Any fuel you sell or use can be replaced at a wholesale price of $2.95/gallon. The customer will rent a truck from another company if you do not accept the proposed deal. In either case, you will service his truck. You know the customer and are confident that he will pay all charges incurred under the agreement.

1. Should you accept or reject the proposed deal? Why, or why not? Show calculations.

2. Would your answer change if your fuel supplier limited the amount of fuel up to 100 gallons/ week you could purchase from him at the wholesale price? Explain.