Question 4 [20 marks] Analyze if the statements that are presented below are True or False. You MUST justify your answer to get credit. Answers without justification (even if they are correct) will be given zero marks.
(a) In any Pareto-optimal allocation of a two-good economy, each consumer has to consume a positive amount of both goods.
(b) A monopolist never produces on the elastic segment of its average revenue curve.
(c) If a firm’s production exhibits increasing returns to scale, then the firm’s marginal costs are decreasing and below its average costs.
(d) Maroon Theater practices third-degree price discrimination and sells tickets to three groups of customers: students, regular customers and senior citizens. The inverse demand of the three groups is linear. Furthermore, the students’ and senior citizens’ elasticities of demand for tickets are −4 and −3, respectively. Because the price charged to regular customers is greater than the price charged to senior citizens, we know with certainty that the ticket price for students will be lower than the ticket price for regular customers.
In: Economics
Use the six-step hypothesis testing where appropriate:
1. You have been told that the mean price of two movie tickets including online service charges, a large popcorn, and two medium soft drinks is $38. Based on a sample of 10 theater chains and assuming a normal distribution, the sample mean was found to be $36.53 and the standard deviation was $3.38. At the 0.05 level of significance, is there enough evidence to indicate that the average price is now less than $38?
a. What is the appropriate null and alternative hypothesis for problem 1? Use both words and notations
b.What level of significance and sample size is used in this problem?
c.What type of problem is this? What formula will you use? Why?
d. What is the correct critical value for the problem? How did you find it?
e.What is the correct value for the test statistic? Provide the formula used and show work
f. Should you accept or reject the null hypothesis? How much confidence do you have in your decision? Restate the null of alternative hypothesis. What policy decision would you make?
In: Statistics and Probability
Can you use Twitter activity to forecast box office receipts on the opening weekend? The following data (stored in TwitterMovies indicate the Twitter activity (“want to see” and the receipts ($) per theater on the weekend a movie opened for seven movies. Solve this problem to two significant digits.
|
Movie |
Twitter Activity |
Receipts ($) |
|
The Devil Inside |
219,509 |
14,763 |
|
The Dictator |
6,405 |
5,796 |
|
Paranormal Activity 3 |
165,128 |
15,829 |
|
The Hunger Games |
579,288 |
36,871 |
|
Bridesmaids |
6,564 |
8,995 |
|
Red Tails |
11,104 |
7,477 |
|
Act of Valor |
9,152 |
8,054 |
In: Statistics and Probability
In a perfectly competitive industry, the market price is GH¢25.
A firm is currently producing 10,000 units of output, its average
total cost is GH¢28, its marginal cost is GH¢20, and its average
variable cost is GH¢20. Given these facts, indicate whether the
following statements are true or false and explain:
a. The firm is currently producing at the minimum average variable
cost.
b. The firm should produce more output to maximize its
profit.
c. Average total cost will be less than GH¢28 at the level of
output that maximizes the firm’s profit.
In: Economics
Douglas Fur is a small manufacturer of fake-fur boots in New York City. The following table shows the company’s total cost of production at various production quantities.
Fill in the remaining cells of the following table.
Quantity | Total Cost | Marginal Cost | Fixed Cost | Variable Cost | Average Variable Cost | Average Total Cost |
|---|---|---|---|---|---|---|
(Pairs) | (Dollars) | (Dollars) | (Dollars) | (Dollars) | (Dollars per pair) | (Dollars per pair) |
| 0 | 120 | — | — | |||
| 1 | 200 | |||||
| 2 | 240 | |||||
| 3 | 285 | |||||
| 4 | 340 | |||||
| 5 | 425 | |||||
| 6 | 540 | |||||
On the following graph, plot Douglas Fur’s average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $200, so you should start your ATC curve by placing a green point at (1, 200). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $80, so you should start your MC curve by placing an orange square at (0.5, 80).)
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
In: Economics
The crop seed market for commercially produced plants such as corn, cotton, soybean, canola etc. used to be close to perfectly competitive before 90s. As will be explained in the next question this market got less and less competitive since then. For the purpose of this question, consider a seed producer in Washington State in 1985 selling corn seeds. Suppose this company is making economic losses.
a. How does the price of corn seeds compare to the average total cost and the average variable cost of producing corn seeds in the short run? Draw the cost curves (average total cost, average variable cost, and the marginal cost) of this representative firm and the price of corn seeds to illustrate its situation in the short run? (10 pts)
b. Now suppose there is a positive demand shock for corn (ie: demand for corn increases) and so the price of corn seeds goes up. The corn seed producer in part-a begins making an economic profit. Draw the cost curves (average total cost, average variable cost, and the marginal cost) of this representative firm and the price of corn seeds to illustrate its new situation? (5 pts)
c. Now that the corn seed producer from part-a is making a profit, what will happen to the corn seed market in the long run? What will happen to the economic profit of an individual corn seed producer? What will happen the quantity supplied by each firm in this market (increase, decrease or ambiguous change?) and the total quantity supplied in the market? (10 pts)
In: Economics
Douglas Fur is a small manufacturer of fake-fur boots in New York City. The following table shows the company’s total cost of production at various production quantities.
Fill in the remaining cells of the following table.
Quantity | Total Cost | Marginal Cost | Fixed Cost | Variable Cost | Average Variable Cost | Average Total Cost |
|---|---|---|---|---|---|---|
(Pairs) | (Dollars) | (Dollars) | (Dollars) | (Dollars) | (Dollars per pair) | (Dollars per pair) |
| 0 | 120 | — | — | |||
| 1 | 210 | |||||
| 2 | 270 | |||||
| 3 | 315 | |||||
| 4 | 380 | |||||
| 5 | 475 | |||||
| 6 | 630 | |||||
On the following graph, plot Douglas Fur’s average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC and AVC, plot the points on the integer; for example, the ATC of producing one pair of boots is $210, so you should start your ATC curve by placing a green point at (1, 210). For MC, plot the points between the integers: For example, the MC of increasing production from zero to one pair of boots is $90, so you should start your MC curve by placing an orange square at (0.5, 90).)
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
In: Economics
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In: Accounting
Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey gathered the following information about the slide:
Required:
1. Prepare an income statement showing the expected net operating income each year from the water slide.
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2-a. Compute the simple rate of return expected from the water slide.
2-b. Based on the above computation, would the water slide be constructed if Mr. Sharkey requires a simple rate of return of at least 14% on all investments?
3-a. Compute the payback period for the water slide.
3-b. If Mr. Sharkey accepts any project with a payback period of five years or less, would the water slide be constructed?
In: Accounting
Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey gathered the following information about the slide:
Required:
1. Prepare an income statement showing the expected net operating income each year from the water slide.
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2-a. Compute the simple rate of return expected from the water slide.
2-b. Based on the above computation, would the water slide be constructed if Mr. Sharkey requires a simple rate of return of at least 13% on all investments?
Yes
No
3-a. Compute the payback period for the water slide.
3-b. If Mr. Sharkey accepts any project with a payback period of five years or less, would the water slide be constructed?
Yes
No
In: Accounting