4. Consider the market for 1M car motor oil in Malaysia. The demand and supply functions are given as follows: where the price, p is in RM and q, the quantity is in litres. A price subsidy, s, of RM10.00 per litre is provided by the government on the good. Determine: a. The market equilibrium before subsidy. (5 pts) b. The after subsidy equilibrium price and quantity. (10 pts) c. The excess burden of the subsidy. (3 pts) d. The subsidy expenditure. (2 pts) e. What is your thought on this subsidy. (5 pts)

S = p = 25 + q/550

D = p = (4800-q)/100

For a single dose of a treatment a company has these costs:

$100 of raw materials, $25 shipping, $25 proper storage containers. The company has invested $300 million in R&D.

4 doses of treatments are required per year per patient. On average, the company requires margins of 50% for their treatment.

1) What is the lowest price point the company will accept per patient for a complete year of treatment? What approach you are using?

2) What is the highest price you could charge (i.e. price ceiling) per patient for the treatment duration of one year? What approach you are using?

Suppose the current stock price S is greater than the strike K, interest rates and dividends are zero. We buy 100 shares of stock at price S, and instruct our broker to sell the stock if its price drops to K and place the proceeds in default-free bonds. We also borrow K dollars at the risk-free rate. Naively, one might think this “stop-loss order” would provide the same kind of insurance as a call. Explain why this is naive, by explaining in detail all of the possible ways in which the payouts from this setup could differ from the payouts of owning a call with strike K.

Use the following data for questions 8-11. Assume an initial margin requirement of 55% and maintenance margin of 40%. An investor has $5,500 in cash and wishes to purchase ABC stock. ABC is currently trading at $100 per share and your broker charges 7.5% interest on margin loans for the period.

1- What is the return on equity of the margin position after one year when price rises to $120?

2-What is the return on equity of the margin position after one year when price falls to $80?

3-At what price would you receive a margin call (ignore the interest on margin loan)?

Write a program that asks the user to enter an item’s wholesale cost and the markup percentage. It should then display the item’s retail price, which also includes a sales tax. For example, if the item’s wholesale cost is $5.00 and it’s markup is 100 percent, than the item’s retail price will be the marked up cost ($10.00) plus the sales tax (assume 6%), which would be $10.60). If an item’s wholesale cost is $10.00 and it’s markup is 50 percent, then the retail cost would be $15.90.

The program should have a method named “calculateRetail” that receives the wholesale cost and markup percentage as arguments and return the retail price of the item.

. A monopolist has a cost function given by c(y) = 0.5y 2 and faces a demand curve given by P(y) = 120 − y.

What is its profit-maximizing level of output? What price will the monopolist charge?

• If you put a lump sum tax of $100 on this monopolist, what would its output be?

• If you wanted to choose a price ceiling for this monopolist so as to maximize consumer plus producer surplus, what price ceiling should you choose?

• Suppose that you put a specific tax on the monopolist of $10 per unit output. What would its profit-maximizing level of output be?

Equipment was acquired at the beginning of the year at a cost of $38,500. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of ten years and an estimated residual value of $750.

a. What was the depreciation for the first year?
$

b. Assuming the equipment was sold at the end of year 2 for $8,900, determine the gain or loss on the sale of the equipment.
$  Loss

Feedback

Book value is the asset cost minus accumulated depreciation. In the first year, the balance in the accumulated depreciation account is zero.

Compare the book value to the sale price. If the book value is more than the sale price, the equipment was sold for a loss. If the book value is less than the sale price, the equipment was sold for a gain.

c. Journalize the entry to record the sale. If an amount box does not require an entry, leave it blank.

Suppose two producers of fiberglass parts, Apex and Bflex, are duopolists competing in Cournot competition, where quantities are chosen before price.  Costs MC=ATC=$40 for each firm, and demand is P=200-q.  

a.               What are the reaction functions for each firm?  What is the equilibrium quantity of fiberglass parts?  What is the equilibrium price?  What profits are earned by each firm?

b.               Show a graph of reaction functions, along with the equilibrium quantity.  What happens in the graph if Apex develops new technology which lowers their costs to MC=ATC=$30?  Show the changes on your graph, and indicate the new equilibrium quantity.

c.               Using the original information (with MC=ATC=40 for both), what is the equilibrium quantity and price if Apex is the leader (choosing quantity first) and Bflex is the follower?  Is there a first-mover advantage?  Explain.

Suppose two producers of fiberglass parts, Apex and Bflex, are duopolists competing in Cournot competition, where quantities are chosen before price. Costs MC=ATC=$20 for each firm, and demand is P=200-q.

a.             What are the reaction functions for each firm? What is the equilibrium quantity of fiberglass parts? What is the equilibrium price? What profits are earned by each firm?

b.             Show a graph of reaction functions, along with the equilibrium quantity. What happens in the graph if Apex develops new technology which lowers their costs to MC=ATC=$10? Show the changes on your graph, and indicate the new equilibrium quantity.

c.             Using the original information (with MC=ATC=20 for both), what is the equilibrium quantity and price if Apex is the leader (choosing quantity first) and Bflex is the follower? Is there a first-mover advantage? Explain.

Good Time Corparation is considering investing in a new engine is expected to increase the production produced. Price of the machine to be purchased $ 1,000,000 with an economic life of 5 years. The machine is depressed by the straight line method. The machine is expected to produce 30,000 units of product every year at a price of $ 60 in the first year and due to price increases are expected to rise by 5% every year. Unit production costs are $ 30 in the first year and will increase at 5% per year. This project has an annual fixed cost of $ 225,000 investment requires a net working capital of $ 35,000. Corporate tax is 35% and the discount rate is 12%, calculated using the net present value (NPV) technique, Profitability Index (PI), Internal Return Rate (IRR) and Modified Internal Return Rate (MIRR), Is the investment in this new machine worth it? Explain your analysis.