P8-9 Milford Company determined its ending inventory at cost and at lower of cost and net realizable value at December 31, 2015, 2016, and 2017, as follows:

Cost Lower of Cost and Net Realizable Value

Dec. 31, 2015 $60,000 $60,000

Dec. 31, 2016 79,000 74,500

Dec. 31, 2017 78,800 69,000

Instructions (a) Prepare the journal entries that are required at December 31, 2016 and 2017, assuming that a periodic inventory system and the direct method of adjusting to NRV are used. (b) Prepare the journal entries that are required at December 31, 2016 and 2017, assuming that a periodic inventory system is used, with inventory recorded at cost and reduced to NRV through the use of an allowance account.

The following terms are used to describe various economic characteristics of costs: Opportunity Cost Average Cost Sunk Cost Out-of-pocket Cost Differential Cost Required: Choose one of the preceding terms to characterize each of the amounts described below. Each term may be used only once (5 Points). (1). The cost of merchandise inventory purchased five years ago. The goods are now obsolete. (2). The cost of feeding 300 children in a public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost? (3). The management of a high-rise office building uses 3,000 square feet of space in the building for its own administrative functions. This space could be rented for $30,000. What economic term describes this $30,000 of lost rental revenue? (4). The cost of building an automated assembly line in a factory is $700,000; a manually operated assembly line would cost $250,000. What economic term is used to describe the $450,000 variation between these two amounts? (5). Refer to the preceding question and assume that the firm is currently building the assembly line for $700,000. What economic term is used to describe the $700,000 construction cost?

Describe the relationship between average variable cost and average total cost. How are the general shapes of the AVC and ATC curves related?

Below is a table which shows a firm’s cost structure.

(a) Is the firm facing a short-run or long-run condition? Explain.

(b) Does the firm exhibit labour specialisation? Explain.

1. A market basket has three items in 1990, refrigerators that cost $600, washers that cost $300, and stoves that cost $200. In 2017, these items (similar brand, size and quality) cost $1000, $600, and $500, respectively. I decide to say that the base year is 2000 where the costs of these items were $800, $450, and $350, respectively. In each year, people purchased 10 refrigerators, 20 washers and 25 stoves. Calculate the CPI index for 1990 and 2017.

Item Base Year 2000 1990 cost 2017 cost

Refrigerator $800 $600 $1000

Washers $450 $300 $600

Stoves $350 $200 $500

1. The substitution effect is one problem with the CPI. Using data from problem one and from data that you make up, show me why the substitution effect is a problem. Does the substitution effect overstate or understate inflation. Your calculations will show which one.

1. As mentioned above, one problem with the CPI is the substitution effect. Another problem is that taxes are not taken into account. We did not talk about disappearing products (type writers) or products that appear (computers) through time. How do you think these things are accounted for when calculating the CPI?

1. Show me a graph of the business cycle and label it.

A monopolist (Firm 1) may be a low-cost type, with constant marginal cost of production 10, or a high-cost type, with constant marginal cost of 20, with probabilities p and 1-p respectively. It has no fixed cost. Only the monopolist knows his type. The game has two stages. In stage one, a potential entrant (Firm 2) with constant marginal cost of 15 decides whether to enter the market. Entry requires a fixed investment of $100. If Firm 2 enters the market, it learns what Firm 1’s type is, and both engage in Bertrand competition in homogeneous products in the second stage. Consumer demand is 100 units regardless of the price.

(a)What is the Nash Equilibrium of the second-stage game if Firm 2 enters? Solve the game for each type of Firm 1.

(B)Argue that Firm 2 would not enter if it believes Firm 1 is certainly low cost but would enter if it believes Firm 1 is certainly high cost.

(C)What is the value of p under which Firm 2 will decide to enter?

. Using the concepts of opportunity cost, marginal analysis and sunk cost what advice would you give the following people: (3 points)

A) Dani loves to eat at the buffet at the casino. She gorges herself so that she is sick for the next two days. She says she does it because it doesn’t cost her anything extra? Your advice?

B) Layne works for a surveying company that spends $20k on surveys to decide whether or not to launch a new product or service. Then the company decides it needs to launch the product or service to earn back the monies spent on the survey. Your advice?

C) Andrea decides her favorite food is In-N-Out Double Double cheeseburgers, therefore, she decides that she will eat nothing but Double Doubles from here on out. Your advice?

D) A student has a car to sell. The student spent $500 on tires in the last year. The student could sell the car for $3000, however, if the student upgraded the car stereo he could sell the car for $3,500. The upgrade would cost $350. Should the student sell the car as is, or upgrade the stereo?

E) Brandy is at a vacation resort in San Diego where a kayaking trip in the harbor was included in the price for the room. Brandy is deathly afraid of kayaking in the ocean because she gets sick. But she thinks because she has paid for it, she should go kayaking. Your advice?

Consider a monopoly with a sort run total cost of TC= 36+Q^2 - and marginal cost: MC=2Q - facing a market demand curve of P=36-Q.

QUESTION: Graph and calculate the consumer surplus, profit, and deadweight loss to welfare.

Steelcase Inc. has a robotic welder that cost $89,500. Shipping and site preparation cost $2000 and installation cost $700. At the end of the 4 th year of service, this robotic welder was traded in for a new robotic welder with a purchase price of $95,900, shipping and site preparation cost $2,300 and installation cost $800. The trade- in allowance for the old robotic welder was $32,000 for purchasing the new robotic welder.This equipment is a 7-year MACRS class.

a)What is the cost basis of the new robotic welder for computing the amount of depreciation for income tax purposes?

b)If instead of trading in the old robotic welder, Steelcase Inc. sold the old robotic welder on the open market for $32,000, then:

i) What is the cost basis of the newrobotic welder?

ii) For the sold old robotic welder, will Steelcase Inc. need to pay a gains tax or get a tax benefit and calculate the value (assume 21% tax rate).

Consider a monopolist with a total cost of TC=9+Q and marginal cost of $1 (MC=1). The monopolist faces a demand curve of P=11-Q.

1. Graph the monopolist

2. Find price and quantity that the monopolist charges.

3. Find the profit and consumer surplus.

4. Find the deadweight loss to welfare.