Scenario Suppose that a movie theater faces a downward sloping demand curve for popcorn and it increases the price of a container of popcorn from $4.00 to $4.80, which causes the count of containers sold to fall from 100 to 90.

Questions 1. What is the elasticity coefficient?

2. Is the demand relatively elastic or relatively inelastic?

3. Should the theater consider raising the price of popcorn further?

4. When a firm faces a downward sloping demand curve, should it ever price its product in the inelastic range of the demand curve (if it has such a range)? Explain why or why not.

5. When a firm is a monopolist (or the only seller of a product), should it price its product in the elastic or inelastic range of its demand curve? Explain.

The T-Bond future with maturity date March 2021 was quoted 113.25 (% of face value, 100 bonds per contract) today on Chicago Board of Trade (CBT). The margin requirements from the clearinghouse are: initial margin 11%; maintenance margin 5%. Bank of America just took a short position on this future contract at the price.

1) What is the initial deposit for the long position? If the future price is 114.75 in May 2020, what would be the balance of Bank of America’s margin account? (5 points)

2) If future price is 109.75 in May 2020, what is the return rate on Bank of America’s initial deposit? (5 points)

3) At what future price would Bank of America get a margin call? (5 points)

he CK Investment Bank has the following capital structure. What is the WACC for the company? Debt: Bond 1. 100,000 bonds with a coupon rate of 8% (paid semi-annually), a price quote of 120.0 and have 30 years to maturity. The semi- annual YTM is 3.24% Bond 2. 100,000 zero coupon bonds (semi-annual compounding) with a price quote of 30.0 and 20 years until maturity. Preferred stock: 200,000 shares of 5 percent preferred stock with a current price of $70, and a par value of $100. Common stock: 5,000,000 shares of common stock, with a price of $60, and a beta of 1.2. Market: The corporate tax rate is 40 percent, the market risk premium is 8%, and the risk-free rate is 3%.

1. A monopolist knows that there are two types of consumers, “high demand” (H) and low demand (L) types. Inverse demand for each consumer of the two types is p = 50 − q_L and p = 100 − q_H . 60% of consumers are of the L type. Marginal cost is zero.

   a) Find the optimal price if the firm can only set a single price. (One way to do this is to pretend that there are 6 consumers of the L type and 4 of the H type, then construct a total demand curve, then calculate.
   b) Suppose that the firm can set a fee for purchasing any amount, plus a price per unit. Explain, using a diagram, how the firm can earn more from this strategy than from using a single price (without a fee).

1. A monopolist knows that there are two types of consumers, “high demand” (H) and low demand (L) types. Inverse demand for each consumer of the two types is p = 50 − q_L and p = 100 − q_H . 60% of consumers are of the L type. Marginal cost is zero.

   a) Find the optimal price if the firm can only set a single price. (One way to do this is to pretend that there are 6 consumers of the L type and 4 of the H type, then construct a total demand curve, then calculate.
   b) Suppose that the firm can set a fee for purchasing any amount, plus a price per unit. Explain, using a diagram, how the firm can earn more from this strategy than from using a single price (without a fee).

3. Refer to the accompanying graph.

1. Suppose the price of an I-phone is $650, calculate the income elasticity of demand for I-phone?
2. Is I-phone a normal good? Explain.
3. Do you expect the cross-price elasticity between I-phones and android phones positive or negative? Explain.

4.

(a) Do you expect the supply curve of diamonds is steep or quite flat? Explain.

(b) With better technology of finding diamonds, how will the price elasticity of supply of diamonds change? Show your answers in a graph.

Cost of Production in the Short-run. SHOW FORMULA IN EXCEL

Price of Labor (L) is PHP 100 while Price of Capital (K) is PhP 50. What is the best cost-minimizing combination of K and L?

An Australian Solar Panel manufacturer exports panels to India at a price of 5,000 Indian Rupee (INR). Currently the exchange rate is AUD/INR50.11. The forecast rate of inflation in Australia is 2.8% per year and 3.9% per year in India. Use this data to answer the following questions on exchange rate pass-through. 1. What was the export price for the solar panel at the beginning of the year expressed in Australian dollars? 2. Assuming purchasing power parity holds, what should the exchange rate be at the end of the year? 3. Assuming 100% pass-through of exchange rate, what will be the dollar price of a solar panel at the end of the year? 4. Assuming 75% pass-through, what will be the dollar price of a solar panel at the end of the year?

(1) Suppose duopolists face the following market demand:

D=100-2P

And both have MC=20

(a) Assume they compete by simultaneously choosing prices (Bertrand-style). What is the Nash equilibrium outcome? List price, quantity supplied by each firm, and profits for each firm. (b) Assume they compete by simultaneously choosing quantities (Cournot-style) with prices set to clear the market (i.e. demand=supply). What is the Nash equilibrium outcome? List price, quantity supplied by each firm, and profits for each firm. (c) Assume the firms successfully collude by setting prices at the monopoly price and splitting the demand in half. What is the outcome? List price, quantity supplied by each firm, and profits for each firm.

1. ______ / (10 pts): Theoretical Buffer Solution: Preparing a 0.050 M buffered solution using a conjugate weak acid/weak base pair. You will prepare 100 mL of buffered solution with pH = ____7___. The formal concentration of this buffer should be 0.050 F (i.e., the total concentration of the weak acid and its conjugate base is 0.050 M). (You will lose 5 points if your first attempt at these calculations in incorrect) • Record your calculations below, clearly showing all your work with proper labels (e.g., mass of HCO3-). • Find the total amount (g or mL) of each species you will have to add to 100 mL of water to get your assigned pH.

2. ______ / (10 pts) Practical Buffer Solution: Describe how you would prepare 100 mL of a 0.050 M _sodium phosphate monobasic and .5 NaOH_buffer to a pH of ___7____ .This method is accomplished by preparing a solution of a weak species (acid/base), and then adding the appropriate strong species (NaOH) to get to the desired pH. (You will lose 5 points if your first attempt at these calculations in incorrect) Outline in bullet form in the space provide below and make sure to include what amounts and volumes you will use based on your calculations

FOR BOTH QUESTIONS USE:

SODIUM PHOSPHATE MONOBASIC molecular W=137.99

.5M NaOH

phosphoric acid pka2=7.198