Sotheby’s has acquired a new Rothko painting and it has decided to auction it. There are two anonymous art-lover bidders of the painting, we will refer to them as Bidder A and Bidder B to protect their anonymity. In this auction format, Bidder A and Bidder B simultaneously submit a written bid for the Rothko painting. However, the auction has a weird twist. Sotheby’s requires that Bidder A must submit an odd number (in millions of US dollars) between 1 and 9 (that is, the bid must be 1, 3, 5, 7, or 9) and Bidder B’s bid must be an even number between 2 and 10 (that is, the bid must be 2, 4, 6, 8 or 10). The bidder who submits the highest bid wins the Rothko and pays a price equal to her bid. The winning bidder’s payoff equals his valuation of the item less the price she pays, whereas the losing bidder’s payoff is 0. Assume that Bidder A has a valuation of 7 (million US dollars) and that Bidder B has a valuation of 8 (million US dollars).

a) (10 points) Write down the strategic form of this game.

b) (10 points) Find all of the Nash equilibria of the game you wrote in part a.

Show every step of your calculations

1. Under what conditions would Labor be replaced by Capital? What would be examples of such an action? Be specific and provide examples. When does labor replace labor? Under what conditions?  Be specific and provide examples.
2. True or False and why: Companies move to other countries like Mexico and China from the US, because the other countries have cheaper labor costs than in the US.
3. If the MR is greater than MC, then what should a company in the perfect competition industry decide to do:

A. Sell more

B. Sell less.

C. Try to raise prices.

D. Lower the price

Select the most effective survey instrument (mailed survey, telephone survey, personal interview or email poll) for collecting the following data. Justify your answer.

1. For a feature article in a magazine, the magazine would like to determine how many of its subscribers regularly exercise.
2. A research company is collecting data surrounding consumer preferences of common household cleaning products within five geographic regions.

3. The business college needs to determine how many students will register for internships next semester.

4. As an ongoing effort to improve customer satisfaction, a department store would like to receive feedback from customers on their most recent purchases.

5. The human resources department would like to determine which health benefits packages employees prefer.

6. The manager of a fast-food restaurant would like to obtain feedback from employees on their opinions of a new corporate policy requiring that all employees complete peer reviews on a quarterly basis.

Salvatore Ltd is an existing company that previously issued 200,000 ordinary shares of $10 each. Balances in accounts as at 30 June 2019 are: retained earnings $150,000, general reserve of $10,000 and tax payable $105,000.

On 1 July 2019 Salvatore Ltd decided to raise additional capital of 40,000 shares of $11 each. A total of 40,000 ordinary shares are to be offered at $10 each and the remainder in one call when required.

Applications for 44,000 shares were received by the closing date of 31^st August, 2019.

On 15^th September 2019 shares were issued and money paid to those unsuccessful applicants.

On 20^th February 2020, the remaining call on the shares was made, and all cash was received on the call by 31st March, except for the holder of 6,000 shares.

Directors announced on 30^th June 2020 a profit before tax of $500,000, of which $150,000 related to income tax.

On 5th July 2020, the board of directors during the Annual General Meeting announced that the company will pay ordinary dividends of 4.6 cents per fully paid equivalent share from retained earnings and $100,000 was transferred from retained earnings to the general reserve.

REQUIRED:

1. Prepare properly formatted general journal entries to record the above transactions. Narrations are NOT required.                                      

Currently, around 17% of US electricity comes from renewables. The US government begins requiring that 30% of electricity come from renewables.

a) Draw a graph of the electric car market that clearly labels supply and demand and shows how they shift. How do the equilibrium price and quantity change?

b) Draw a graph of the oil market that clearly labels supply and demand and shows how they shift. How do the equilibrium price and quantity change?

Amy, a self employed US customs broker, obtained a customs broker’s license from US Customs and Border Protection in 1991. Since 2003 Amy has operated a customs brokerage business, Atlantic Air Express, LLC, (Atlantic Air), from her home. For 2004 Amy reported self employment income of $45,649. From this activity, Amy reported a net profit on Schedule C, Profit or Loss From Business, for each year from 2005 to 2011. For 2007 the year in issue, Amy reported a net profit of $130,872 on Schedule C.

Amy began breeding Great Pyrenees dogs in 1994 on a half acre of property in New York, where she sets up kenneling facilities. Amy incurred expenses to set up the kennel and to purchase dogs, food, grooming supplies and equipment, a vehicle to transport the animals, and advertising. From 1994 to 1999 Amy sought to build the prestige and reputation of the dog breeding operation, Impyrial Great Pyrenees (Impyrial), by producing a robust stock of Great Pyrenees dogs and showing the dogs at dog shows. She spoke with experienced Great Pyrenees breeders and visited various successful kennels to gather information for developing a breeding program.  Amy’s dog breeding activity sustained losses every year until 2010, for which she reported a small net profit.

In 1999, when Amy owned five dogs, she moved Impyrial to a 15-acre farm in Orange County, New York. The purpose of the move was to accommodate a large breeding program. Amy also obtained a purbred dog license from the New York State Department of Agriculture and Markets, which is available only for kennels that maintain more than 10 dogs. By 2007 Amy owned 26 dogs.

Amy’s main source of income from the dog breeding activity is the sale of puppies. Amy typically charges $1,200 for a puppy but charges as much as $4,000 for a puppy sired from one of her top winning show dogs. Amy sold approximately six puppies between 1994 and 1999. During 2000 and 2001 Amy’s dogs produced six litters. In 2002 the dogs began to have fertility problems. Amy’s dogs had other health problems that also disrupted the breeding program, including Lyme disease, bacterial infections, and thyroid problems. From 2002 to 2009 Amy attempted to breed 46 female dogs, resulting in 17 pregnancies.  The pregnancies produced 13 litters. In 2009 after consultations with veterinarians and fertility specialists Amy administered a month long antibiotic treatment to all of the dogs and treated some of the female dogs with thyroid medication. Amy’s dogs produced two litters shortly after the medical treatment. These were the first pregnancies in nearly 18 months.  Amy sold 18 puppies in 2010.

In addition to selling puppies, Amy sells semen from the male dogs to breeders and charges stud fees ranging from $1,200 to $2,500 for top winning show dogs.

Amy reported profit or loss on Schedule C for Impyrial as follows:

Year             Income                   Expenses      Gain or (loss)

2005             $4,729                    $76,590        ($71,861)

2006               6,900                    96,996          (90,096)

2007               4,600                    71,116         (66,516)

2008               4,500                     69,340         (64,840)

2009               6,800                    30,790           (23,990)

2010             33,600                    30,120          3,480

2011                8,320                    27,369          (19,049)

Amy reported the income and expenses attributable to Impyrial on a Schedule C attached to her 2007 Federal income tax return.  Amy asserts that (1) she engaged in the activity with the intent to make a profit and (2) that her return for taxable year 2002 was examined and that the Commissioner of Revenue allowed her to treat Impyrial as a trade or business.

Commissioner of Revenue determined that Amy did not engage in the dog breeding activity for profit and disallowed Amy’s expense deductions claimed in excess of the reported income.

Please note that Amy began Impyrial in 1994. Impyrial sustained losses every year from 1994 to 2009. The record does not reflect the amounts of Impyrial’s income, expenses, and losses between 1994 and 2004.

QUESTIONS

1)Based on the facts presented do you believe that Amy's activity constitute a trade or business. ? EXPLAIN

2) Assume that you work as an agent of the IRS and you are challenging Amy's tax position.  What argument will you present against Amy?

3) Assume that Amy is your client and was audited by the IRS.  What arguments will         
you present to defend your Client

Amy, a self employed US customs broker, obtained a customs broker’s license from US Customs and Border Protection in 1991. Since 2003 Amy has operated a customs brokerage business, Atlantic Air Express, LLC, (Atlantic Air), from her home. For 2004 Amy reported self employment income of $45,649. From this activity, Amy reported a net profit on Schedule C, Profit or Loss From Business, for each year from 2005 to 2011. For 2007 the year in issue, Amy reported a net profit of $130,872 on Schedule C.

Amy began breeding Great Pyrenees dogs in 1994 on a half acre of property in New York, where she sets up kenneling facilities. Amy incurred expenses to set up the kennel and to purchase dogs, food, grooming supplies and equipment, a vehicle to transport the animals, and advertising. From 1994 to 1999 Amy sought to build the prestige and reputation of the dog breeding operation, Impyrial Great Pyrenees (Impyrial), by producing a robust stock of Great Pyrenees dogs and showing the dogs at dog shows. She spoke with experienced Great Pyrenees breeders and visited various successful kennels to gather information for developing a breeding program. Amy’s dog breeding activity sustained losses every year until 2010, for which she reported a small net profit.

In 1999, when Amy owned five dogs, she moved Impyrial to a 15-acre farm in Orange County, New York. The purpose of the move was to accommodate a large breeding program. Amy also obtained a purbred dog license from the New York State Department of Agriculture and Markets, which is available only for kennels that maintain more than 10 dogs. By 2007 Amy owned 26 dogs.

Amy’s main source of income from the dog breeding activity is the sale of puppies. Amy typically charges $1,200 for a puppy but charges as much as $4,000 for a puppy sired from one of her top winning show dogs. Amy sold approximately six puppies between 1994 and 1999. During 2000 and 2001 Amy’s dogs produced six litters. In 2002 the dogs began to have fertility problems. Amy’s dogs had other health problems that also disrupted the breeding program, including Lyme disease, bacterial infections, and thyroid problems. From 2002 to 2009 Amy attempted to breed 46 female dogs, resulting in 17 pregnancies. The pregnancies produced 13 litters. In 2009 after consultations with veterinarians and fertility specialists Amy administered a month long antibiotic treatment to all of the dogs and treated some of the female dogs with thyroid medication. Amy’s dogs produced two litters shortly after the medical treatment. These were the first pregnancies in nearly 18 months. Amy sold 18 puppies in 2010.

In addition to selling puppies, Amy sells semen from the male dogs to breeders and charges stud fees ranging from $1,200 to $2,500 for top winning show dogs.

Amy reported profit or loss on Schedule C for Impyrial as follows:

Year             Income                   Expenses      Gain or (loss)

2005             $4,729                    $76,590        ($71,861)

2006             6,900                  96,996          (90,096)

2007             4,600                   71,116         (66,516)

2008             4,500                  69,340         (64,840)

2009             6,800                  30,790           (23,990)

2010             33,600                  30,120          3,480

2011                8,320                    27,369          (19,049)

Amy reported the income and expenses attributable to Impyrial on a Schedule C attached to her 2007 Federal income tax return. Amy asserts that (1) she engaged in the activity with the intent to make a profit and (2) that her return for taxable year 2002 was examined and that the Commissioner of Revenue allowed her to treat Impyrial as a trade or business.

Commissioner of Revenue determined that Amy did not engage in the dog breeding activity for profit and disallowed Amy’s expense deductions claimed in excess of the reported income.

Please note that Amy began Impyrial in 1994. Impyrial sustained losses every year from 1994 to 2009. The record does not reflect the amounts of Impyrial’s income, expenses, and losses between 1994 and 2004.

QUESTIONS

Based on the facts presented and information presented in chapter 6, do you believe that Amy's activity constitute a trade or business. EXPLAIN

Assume that you work as an agent of the IRS and you are challenging Amy's tax position. What argument will you present against Amy?

     3) Assume that Amy is your client and was audited by the IRS. What arguments will         

           you present to defend your Client?

a) Question 2a) Draw a graph representing a loanable funds market. Assume inelastic supply of loanable funds. Make sure to label axes, curves, and equilibrium. Write down equations for each of the curves. b) Interpret the slope of the demand for loanable funds curve. c) Interpret the slope of the supply of loanable funds curve. In 2020, the COVID pandemic has spread around the world. Some substantial policy changes in response to the adverse effects of the pandemic in the US included an increase in spending on publicly provided medical tests and provision of stimulus checks to public ($1200 per person). d) Focus on these two events only and illustrate them on your loanable funds model diagram. e) What changes to the equilibrium can you predict with this model going from (a) to (d) and what is the intuition for your predictions?