e. Calculate Real GDP for 2007 and 2008 using the chain-weighted method.

f. Calculate the GDP deflator and inflation using Real GDP from part e.

Short essays (maybe a page each)
1. Explain why an economy with one competitive industry and one monopoly causes economic inefficiency. (This answer should include a definition of economic efficiency.)

2. Based on economic efficiency, would it be a good idea to levy a tax on a good produced by a monopoly? Explain.

3. You own the note shown here:

Payable to Bearer:
$100 on May 14, 20XX
Signed: ___________

Whoever owns this note a year from today will be given $100 at that time. If you own this note today but want money today, how would you determine a fair price at which to sell it? Explain.

4. Long Essay – at least 2 pages -- on the following.  
Essentially every economist believes that the best approach to CO2 abatement is the carbon tax. Write an essay explaining why economists believe this is true. You should write this as if it is to be read by a roommate who has taken no economics. Among other things your answer should address the following question: One consequence of a carbon tax would be to increase the price of electricity. Is this part of the beneficial effect of the carbon tax or is it an unfortunate side effect?

On December 31, 2017, Berclair Inc. had 540 million shares of common stock and 21 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $1,050 million.

Also outstanding at December 31 were 84 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 84 million common shares at an exercise price of $75 per share. During 2018, the market price of the common shares averaged $100 per share.

The options were exercised on September 1, 2018.

Required:

Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Synthetic positions are financial positions that mimic another position but use different instruments to do so. A short sale of a stock is a strategy where we borrow shares under the expectation that their prices will drop. If they do, then we buy them back and repay the loan at a profit. In doing so, we are financially obligated for the whole value of the shares which could cost us a large amount of money. A synthetic short sale mimics the short with options but without the large financial cost.

A synthetic short sale is created with a long put and a short call with the same strike price and expiration dates. Bank of America stock is currently trading at $21.71 per share. A May $25 call is trading at $2.75 and a May $25 put is currently trading at $2.25.

1. Evaluate the payoffs of a short sale of BOA and the synthetic short sale at prices of $18, $25 and $28. Don’t forget the premiums on the options in your calculations and that each contract is for 100 shares. Assume your short sale is 100 shares also.
2. Draw a payoff profile for each strategy.
3. Compare the payoffs of each strategy in terms of monetary outlay and payoff at each price.

In a hypothetical country, for an arbitrary good, the demand curve for that good is “Q= 200 - 4 P”. For the supply side, the fixed cost is 100 and the average cost is "0.5Q +20 + 100/Q".

(a) If there is free trade, and the world price p^w = 42. Under perfect competition, what is the consumer surplus and producer surplus? (3 points)

(b) If there is free trade, and the world price p^w = 42. Under monopoly, what is the consumer surplus and producer surplus? (3 points)

(c) In a hypothetical home country, for arbitrary firms and hypothetical goods, the fixed cost is $25, the constant marginal cost is $12, the demand curve for that good is “Q= 200 - 4 P”, the total sales of the whole industry is 1600 units.

In a hypothetical foreign country, the arbitrary firms face the same costs. The only difference here is the total sales, which is 900 units.

Based on PP curve [Notes: P = c + 1/(b x n)] and CC curve, what is the equilibrium number of the firms inside the industry for that home and foreign country? What is the equilibrium number of firms in the whole world if there is free trade? What is the trade pattern for this model? (4 points)

a) In 2008, inflation was unusually high (meaning prices increased more than usual), GDP growth fell, and unemployment increased. Use the aggregate supply and demand model to suggest what might have happened at the beginning of the great recession.

b) In 2009, the US experienced deflation (meaning prices were falling), and GDP actually decreased. Unemployment increased to 10%. Use the aggregate supply and demand model to suggest what might have happened during the second half of the great recession.

c)Assume the economy is in equilibrium. Explain exactly, i.e., one step at a time, why the price level and real GDP will change if the price of oil (a major input in many businesses) increases. Describe the process from the beginning to where the economy reaches a new equilibrium.

d)An economy is currently producing at an equilibrium level of real GDP of $14 trillion. What will happen if government spending (alone, with no other changes) decreases by $100 billion? Will real GDP increase or decrease? Explain why it will change by $100 billion, by less, or by more.

e)Explain why rising prices reduce the spending multiplier effect of an increase in aggregate demand.

Hamburgers are America’s favorite food. Consumers spend more than $100 billion on the beef sandwiches every year. But despite America’s infatuation with burgers, there is considerable dissatisfaction among consumers based on hamburger quality and value. Many customers just aren’t happy with what is served up at market-leading fast-food outlets. They want a better burger, and they won’t hesitate to pay a higher price to get one. Enter Smashburger. Started just a few years ago in Denver, Colorado, Smashburger is now a rapidly expanding chain of more than 100 stores in 17 states. And all this growth happened during a severe economic downturn despiteSmashburger’s average lunch check of $8. Many customers pay as much as $10 or $12 for a burger, fries, and shake. The Smashburgervideo shows how this small startup has pulled off a seemingly impossible challenge.

Discuss the three major pricing strategies in relation to Smashburger. Which of these three do you think is the company’s core strategic strategy?

What effect does Smashburger’s premium price have on consumer perceptions?

Is Smashburger’s success based on novelty alone or will it continue to succeed? Explain.

I am working on these study questions and am having trouble understanding how it all works together. Any help would be greatly appreciated!!

An all equity firm is expected to generate perpetual EBIT of $50 million per year forever. The corporate tax rate is 0% in a fantasy no tax world. The firm has an unlevered (asset or EV) Beta of 1.0. The risk-free rate is 5% and the market risk premium is 6%. The number of outstanding shares is 10 million.

1. Calculate the existing WACC of this all equity or unlevered firm. Calculate the total value of

this all equity firm and the existing share price.

2. The firm decides to replace part of the equity financing with perpetual debt. The firm issues

$100 million of permanent debt at the riskless interest rate of 5%, and repurchases $100 million of equity.

A. Find the new value of the levered firm.
B. Find the new number of shares outstanding, and the new share price.

3. Calculate the new equity Beta, new cost of equity, and new WACC following this capital

structure change. Assume a debt beta of zero.

1. Suppose you have been hired by a research firm trying to understand the market for Widgets (a hypothetical product). Your analysis of the data indicates that the Demand curve for Widgets is estimated to be linear and given by equation Qd = 100 – 2P and the Supply curve for Widgets appears to be linear as well and is estimated as Qs = 2P – 20.

• Graphically draw these two curves, labeling all relevant points (such as intercepts for each line) on the horizontal and vertical axes.
• Given that Demand is Qd = 100 – 2P and Supply is Qs = 2P – 20, your next assignment is to compute the equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.
• The firm that hired you has estimated that improvements in Widget quality tastes will cause the Demand curve to change to Qd = 140 – 2P.   If the Supply curve remains the same (Qs = 2P – 20), graphically draw these two curves, labeling all relevant points on the horizontal and vertical axes.
• Given that New Demand is Qd = 140 – 2P and Supply is Qs = 2P – 20, your next assignment is to compute the new equilibrium Price and Quantity in the market for Widgets. Indicate these values on the graph.