Clear's Custom Window division has been purchasing a certain window components from Duwee, Cheatim & How Company. However it was determined that it can use one of the frames from the Framing division. The Framing Division, which is operating at capacity, incurs an incremental manufacturing cost of $65 per frame. The Picture Framing Division can sell all its output to the outside market at a price of $100 per frame, after incurring a variable marketing and distribution cost of $8 per frame. If the Window division purchases frames from Duwee at a price of $100 per frame, it will incur a variable purchasing cost of $7 per frame. Clear View's division managers can act autonomously to maximize their own division's operating income.

1. What is the minimum transfer price at which the Frame manager would be willing to sell frames to the Window Division?

2.What is the maximum transfer price at which the Window manager would be willing to purchase frames from the Framing Division?

3. Now suppose that the Framing Division can sell only 70% of its output capacity of 20,000 frames per month on the open market. Capacity cannot be reduced in the short run. The Windows Division can assemble and sell more than 20,000 windows per month.

a. What is the minimum transfer price at which the Framing manager would be willing to sell frames to the Windows Division?

b. From the point of view of Clear View's management, how much of the Framing Division's output should be transferred to the Window Division?

c. If Clear View mandates the Framing and Windows managers to "split the difference" on the minimum and maximum transfer prices they would be willing to negotiate over, what would be the resulting transfer price? Does this price achieve the outcome desired in requirement 3b?

A 2-year $100 par value bond pays 5% semi-annual coupons. The 6-month spot rate is 2%, the 1-year spot rate is 2.5%, the 18-month spot rate is 3% and the 2-year spot rate is 4%.

Determine the price of the bond

Determine the yield to maturity of the bond

Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level where marginal revenue is equal to marginal cost. The price per ton of paper is $80 and the average total cost is $95. Suppose the total fixed cost = $100. How much is the profit if the firm shuts down?

Problem 8:

Consider a monopolistic competitor with TC = 100 - 4Q + Q² . Suppose that the demand for

their version of the product is P = 50 - 3Q .

a) What quantity maximizes their profits?

b) What price do they charge?

c) What profits do they earn in the short run?

d) What will happen to their profits in the long run?

If the net convenience yield is lower than 100% but higher than the risk free rate

Group of answer choices

The future rate for a commodity should be higher than the spot price of the commodity.

The future rate should be negative

The future rate of the commodity will converge to zero as the maturity of the contract goes to infinity.

None of the above.

Question: If Coke and Pepsi are perfect substitutes for Lynn. She is always willing to substitute 1.1 Pepsis for 1 Coke. That is, her utility function is: U(Cokes, Pepsis)= 1.1*Cokes + Pepsis

If she has an income of $100 and the price of Cokes is $1.20 and Pepsis is $1, then what is the optimal bundle that Lynn should consume?

a)Define economic theory and give an example of a ceteris paribus problem
b)Discuss why the balance of payments report is useful to the Ministry of Finance.
c)Differentiate between:
i)normative economics and positive economics
ii)price elasticity of demand and income elasticity of demand
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You grew up and learned to drive in England (where they drive on the “wrong” side of the road). Now in the US for 3 months, you leave a house party totally drunk. Your car is parked outside the house, but another guest at the party – a female acquaintance whom you do not know very well, -- suggests that you take a taxi home rather than drive. You protest, but the acquaintance calls an Uber for you on her phone. She then says goodbye to you in the hallway, and returns to the party.

Once outside, you stumble towards the street. The Uber is there. You waive him away. Then you get into your car and drive on the wrong side of the road.

A driver in a Fiat 500 (tinier car than yours) coming towards you, swerves violently towards the sidewalk to get out of your way. The Fiat hits a bicyclist, killing the woman cyclist, whose body is thrown off the bike high into the air and directly into a frail 94-year old man walking with his equally frail twin broth, and his relatively healthy 92-year old wife. As a result of the impact, the elderly man falls over, breaks this hip, and cracks 5 ribs. The twin brother severely breaks his femur. The wife, caught in the jostle, also falls back and suffers a blow to the head on the pavement, but breaks no bones.

Passersby call 911, and the husband and his twin, both on the ground and unable to move even a little without a great deal of pain, are taken to the hospital by ambulance.

The wife gets up by herself with barely any assistance, and insists to passersby that she is fine and doesn’t need to go to the E.R. with her husband. She sincerely believes that she is fine, and explains that she must get home to walk and feed the couple’s dogs. When the passersby insist that she also go to the hospital to get checked out, she refuses, explaining that the dogs haven’t been walked or fed all day and that they desperately need to be.

At the hospital, the doctors determine that the elderly husband and his twin will both require an extended stay to fix their broken bones and to be kept under observation. After two weeks, the elderly husband contracts pneumonia, which is exceedingly common for elderly patients who stay over 7 days in the hospital. As a result of the pneumonia, the elderly husband becomes progressively weaker and eventually dies.

The twin undergoes surgery to fix his femur. During the surgery, the doctors determine that he needs a blood transfusion and accidentally give him the a transfusion with the blood type. The twin dies as a result of this error.

As for the wife, a few hours after she returned home and walked the dogs, she began to have a bad headache. She took some aspirin and went to sleep. However, the headache was worse when she awoke the next morning. Shortly thereafter, she died. It turned out that the blow to her head had, unbeknownst to her, caused internal bleeding in her brain. It is common for the person to have a delayed headache in such situations but not know that they are bleeding until it is too late. And so it was for this wife. Had she gone to the hospital immediately, that would likely have saved her life.

11. Regarding the death of the elderly husband, you are:
    1. Not responsible for his death because you were drunk and learned to drive in England, and so didn’t realize that you were driving on the wrong side of the road.
    2. Not responsible for his death because you didn’t knock him over yourself, at least not directly.
    3. Not responsible for his death because he died of general weakness and pneumonia, which were beyond your control.
    4. Responsible for his death because you are the proximate cause of his death.
    5. Responsible for his death because it was foreseeable -- from the moment that you got into your car outside the house -- that the elderly man would die of general weakness and pneumonia in the hospital.
    6. Responsible for his death because you committed a felony by driving drunk.
    7. Not responsible because the fault was actually that of the Fiat 500 driver.

12. Regarding the death of the elderly wife, you are:
    1. Not responsible for her death because you were drunk and learned to drive in England, and so didn’t realize that you were driving on the wrong side of the road.
    2. Not responsible for her death because you didn’t knock her over yourself, at least not directly.
    3. Not responsible for her death because she died of bleeding in the brain, which was beyond your control.
    4. Responsible for her death because you were the proximate cause of her death.
    5. Responsible for her death because it was foreseeable -- from the moment that you got into your car outside the house -- that the elderly wife would die of bleeding in the brain.
    6. Responsible for her death because you committed a felony by driving drunk.
    7. Not responsible because the fault was actually that of the Fiat 500 driver.

13. Again, regarding the death of the elderly wife, her decision not to go to the hospital, but to go home after knocking her head:
    1. was an intervening factor that broke the chain of causation because it was utterly unforeseeable that she should do so.
    2. was an intervening factor that did not break the chain of causation because, as a free person, it was her decision to make, and hers alone.
    3. was an intervening factor that did break the chain of causation because, as a free person, it was her decision to make to go home, and no one had the authority to order her to do otherwise.
    4. was not an intervening factor because it was common for a person in her condition not to know that they were bleeding in the brain and hence reasonably foreseeable that she would choose to go home.
    5. was not an intervening factor because it was foreseeable that she would choose to walk her dogs rather than go to the ER with her husband.

14. Regarding the death of the twin brother, you are:
    1. Liable because you set in motion a chain of events, each step of which was reasonably foreseeable from the vantage point of the previous step.
    2. Liable because your car didn’t break his femur.
    3. Not liable because it was the fault of the female cyclist.
    4. Not liable because medical malpractice constituted an intervening factor that broke the chain of causation.
    5. Not liable because it his walking on the sidewalk when he was so frail and fragile was an intervening factor the broke the chain of causation.
    6. In this case, you could argue that the fume-related injuries were not foreseeable. However, you may be responsible for the other driver’s injuries, since running a red light could foreseeably cause a car accident.

3. An aluminum producer acts as a monopolist who sells aluminum to an airplane manufacturer. The airplane manufacturer is also a monopolist. Demand for airplanes is given by P=30-.5Q with price in millions of dollars. The marginal cost of producing aluminum is $1 million. Exactly one unit of aluminum is required to make one airplane. The marginal cost of producing an airplane for the plane manufacturer is the price of aluminum plus $2 million.

1. The aluminum producer sets the price of aluminum sold to the airplane manufacturer first and the airplane producer sets the price of airplanes second. What will be the price of aluminum and airplanes? How many airplanes are sold? (7 points)

2. If the supply chain could coordinate to maximize joint profit, what would be the price and quantity of airplanes sold? (5 points)