There are four factors discussed in the course material on the pricing of consumer loans. Examine these factors on their relevancy with the current changes in the banking environment

i)The cost-plus model

ii)Annual percentage rate

iii)Simple interest

Iv)The discount rate method

1. Question 1

   1 Point

   If firms are competitive and profit maximizing, the price of a good equals the

   1. marginal cost of production.

   2. fixed cost of production.

   3. total cost of production.

   4. average total cost of production.

2. Question 2

   1 Point

   Figure 14-14

   Refer to Figure 14-14. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is correct?

   1. Points W, Y, and Z represent both short-run and long-run equilibria.

   2. Points W, Y, Z, and X represent short-run equilibria.

   3. Points W, Y, and Z represent long-run equilibria.

   4. Points W and Z represent long-run equilibria.

3. Question 3

   1 Point

   When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?

   1. The long-run market supply curve will be upward sloping.

   2. The condition of free entry into the market will be violated.

   3. Producer profits will fall in the long run.

   4. The long-run market supply curve will be horizontal as new firms enter and drive the price downward.

4. Question 4

   1 Point

   Scenario 14-5

   A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition.

   Refer to Scenario 14-5. As a result of the increase in the demand for tomatoes, we would predict that in the short run that the

   1. production of tomatoes would be at efficient scale.

   2. price of tomatoes would rise.

   3. total cost for existing irradiated tomato producers must rise.

   4. number of firms in the market would fall as prices fall and firms exit the market.

5. Question 5

   1 Point

   Figure 14-11

   Refer to Figure 14-11. The figure above is for a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve?

   Point

   Price

   Quantity

   A

   $4

   16

   B

   $4

   32

   C

   $6

   6

   D

   $8

   64

   1. A only

   2. A and C only

   3. B only

   4. B and D only

6. Question 6

   1 Point

   You purchase a $30, nonrefundable ticket to a play at a local theater. Ten minutes into the show you realize that it is not a very good show and place only a $10 value on seeing the remainder of the show. Alternatively you could leave the theater and go home and watch TV or read a book. You place an $8 value on watching TV and a $6 value on reading a book.

   1. You should leave the theater since the net benefit from seeing the remainder of the show is -$20, while going home will earn you at least $8 of satisfaction.

   2. You should stay and watch the remainder of the show.

   3. You should go home and watch TV.

   4. You should go home and read a book.

7. Question 7

   1 Point

   A firm that shuts down temporarily has to pay

   1. its variable costs but not its fixed costs.

   2. its fixed costs but not its variable costs.

   3. both its variable costs and its fixed costs.

   4. neither its variable costs nor its fixed costs.

8. Question 8

   1 Point

   Figure 14-5

   Suppose a firm operating in a competitive market has the following cost curves:

   Refer to Figure 14-5. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

   1. P7 × Q5.

   2. P7 × Q3.

   3. (P7 - P5) × Q3.

   4. We are unable to determine the firm’s profits because the quantity that the firm would produce is not labeled on the graph.

9. Question 9

   1 Point

   Susan quit her job as a teacher, which paid her $36,000 per year, in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. In the short run, Susan should

   1. shut down her business, and in the long run she should exit the industry.

   2. continue to operate her business, but in the long run she should exit the industry.

   3. continue to operate her business, but in the long run she will probably face competition from newly entering firms.

   4. continue to operate her business, and she is also in long-run equilibrium.

10. Question 10

    1 Point

    Scenario 14-1

    Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.

    Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

    1. -$200.

    2. $1,000.

    3. $3,000.

    4. $4,000.

11. Question 11

    1 Point

    Consider a competitive market with 50 identical firms. Suppose the market demand is given by the equation Q^D = 200 - 10P and the market supply is given by the equation Q^S = 10P. In addition, suppose the following table shows the marginal cost of production for various levels of output for firms in this market.

    Output

    Marginal Cost

    0

    --

    1

    $5

    2

    $10

    3

    $15

    4

    $20

    5

    $25

    How many units should a firm in this market produce to maximize profit?

    1. 1 unit

    2. 2 units

    3. 3 units

    4. 4 units

On December 31, 2012, Cia Company borrowed $400,000 from First Bank with interest payable annually at 10% maturing on December 31, 2015 in order to provide funds for the construction of a building to use as its corporate headquarters. On January 1, 2013, Cia Company started the construction. The project was completed and ready for occupancy on December 31, 2013. Cia incurred the following expenditures related to construction during 2013:

Aside from the loan described above, Cia also had a $1,000,000 5-year note payable issued December 31, 2012 that bears interest annually at 8% and $1,200,000 of bonds payable issued on December 31, 2010 due in 10 years that bear interest annually at 9%.

1. Compute weighted average accumulated expenditures for the construction project.

2. Compute Actual Interest and Avoidable Interest for the project for 2013. (Hint: you will also need to calculate a weighted average interest rate on Cia’s general debt.

A group students collected data on the speed of vehicles traveling through a construction zone on a state highway, where the posted speed was 45 mph. The recorded speed (in mph) of 15 randomly selected vehicles is given below. You should be able to copy and paste them into Excel.

- Use Excel Data Analysis to find the mean, median, and mode of the data set. Make sure that you clearly state or point out which numbers are which. Don’t expect me to pick the numbers I want.

- Assuming speeds are approximately normally distributed, use Data Analysis to construct a 95% confidence interval for the true mean speed of drivers in this construction zone. Interpret the interval.

- Construct a 99% confidence interval for the true mean speed of drivers in this construction zone. Interpret the interval.

- Compare the widths of the 95% and 99% confidence intervals.

- What conclusions do you draw about the speeds people drive in this construction zone?

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $56,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $23,800. A new piece of equipment will cost $146,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The firm’s tax rate is 25 percent and the cost of capital is 11 percent.

e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)

g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)

A city with 4% unemployment and no inflation is considering building a new stadium for its professional football team. The team currently plays in an old stadium owned by the city. It would cost city $500M (M for million) to demolish the old stadium and build a new one at the same location, which the city owns. The new stadium would be expected to last for 40 years and the city would finance the costs of the project by borrowing at 6% annual interest and paying $35M per year for 40 years for all expenses, including maintenance and debt repayment. About $300M of the demolition and construction cost would be spent on labor and materials supplied by city residents (referred to as locals). The team owner, who is not a local, would pay the city $3M per year rent. The owner’s company would sell tickets to games, parking, and concessions (food, drink, souvenirs, etc.) and keep the profits from those sales. Analysts estimate that if the stadium is built, the locals’ demand curve for tickets to the games will be linear each year, with a choke price of $240, and that locals will buy 100,000 tickets per year from the team owner’s company at an average price of $80 per ticket. Analysts estimate that outsiders who attend games will spend $20M per year on restaurants, hotels and other goods and services provided by city residents. Assume that the average profit rate of local businesses and local labor is 0.2 and that locals’ marginal propensity to consume local value added is 0.3. Except in part h, below, assume that the analysts’ estimates are correct. Except in part i, assume that the football team will leave the city if the new stadium is not built.

a.[10] Estimate the net generated income for the locals from the demolition of the old and construction of the new stadium alone, making reasonable assumptions about any other missing information. Explain all your steps. Translate this net generated income into annualized income for the residents at 6% annual interest.

b.[7] An economic impact analysis of the stadium project estimates that the demolition and construction alone would give the locals generated income of $600M (estimated to be the $300M spent on local value added times a multiplier of 2). List and explain the reasons why this “generated income” estimate is probably much higher than a reasonable estimate of the net generated income from the demolition and construction.

c.[6] Estimate the annual user benefit the locals would get from the project. Explain all your steps.

Is there a difference between the means of the total of rooms per hotel in Crete and Southern Aegean Islands? Answer your question by calculating an appropriate, symmetric, 95% confidence interval using a Z statistic and equal standard deviations in the two populations. Explain your findings.

REGION ID

1= Crete
2=Southern Aegean Islands
3=Ionian Islands