1. In the market for college degrees, there are many buyers but only 1 seller.

Qd = 1000 – 2P.         This implies that Price or Private MB = 500 - .5Q.

Education has positive externalities. Assume each degree has a $50 value to society.

Such that the Social MB = 550 - .5Q.             MC = 100.

• What is the efficient amount for Q and the corresponding P and Total Surplus?
• Remembering Revenue = PQ, what is the equation for marginal revenue for the supplier?
• What Q will the monopolist produce? And what will P be? What is Total Surplus under this situation? NOTE, IN THIS PRIVATE MARKET STUDENTS CHOOSE WHETHER TO BUY BASED ON THEIR PRIVATE MB.

The demand for sunglasses is given by D(p) = 100 − 2 p and the supply curve is given by S(p) =3p

(a) Sketch both the demand and supply curves on the same graph (be sure to label your axes correctly)

(b) Determine the value of consumer surplus and producer surplus at the equilibrium values. show working

Suppose all sunglasses are imported from China.

Suppose also that the government imposes an import tariff of $10 per unit.

(c) Determine the new equilibrium values of price and quality. show working

(d) Determine the tariff’s impact on consumer surplus, producer surplus, and total surplus.

Fat Tire Bicycle Company currently sells 37,000 bicycles per year. The current bike is a standard​ balloon-tire bike selling for $100​, with a production and shipping cost of $25. The company is thinking of introducing an​ off-road bike with a projected selling price of $370 and a production and shipping cost of ​$225. The projected annual sales for the​ off-road bike are 15,000. The company will lose sales in​ fat-tire bikes of 10,000 units per year if it introduces the new​ bike, however.

What is the erosion cost from the new​ bike?

Should Fat Tire start producing the​ off-road bike?

Consider a one year American put option on 100 ounces of gold with a strike of $2300 per ounce. The spot price per ounce of gold is $2300 and the annual financing rate is 7% on a continuously compounded basis. Finally, gold annual volatility is 15%. U= 1.112, D=0.8994, U= 0.6411. In answering the questions below use a binomial tree with two steps.

A. Value the option at time 0 using the binomial tree.

B. How would you hedge a long position in the put option at time 0 with a portfolio composed of a position in gold, and a cash borrowing or lending position?

1. Katy owns a portfolio that consists of four stocks as follows:

1. If the S&P 500 return is expected to be 7.5%, and the T-bills yield 2%, what return should Katy require from stock A?
2. If the S&P 500 return is expected to be 7.5%, and the T-bills yield 2%, what return should Katy require from stock C?
3. What return should Katy require from her portfolio?

USE ABSORPTION METHOD AND DIRECT APPROACH

The following information is considered for a manufacturing company

For 5000 units of product, the following were incurred:

2000 units of raw material at $100 each

3000 hh at $ 20 each

$ 100.000 in electric power

linear depreciation for $ 50.000 each period

lease machinery for $ 50.000

4000 units were sold during the period at a sale price of $ 400. It asks:

a) determine the total and unit production cost according to both approaches

b) determine the result of the period according to both approaches

c) determine the inventory cost according to both approaches

Question 1: The boiler in the heating plant at arctic College is designed to burn either fuel oil or coal. Suppose that one ton of coal, C, produces as many BTUs as 100 gallons of fuel oil, F. (a) Draw a typical isoquant for BTU production. (b) What is the elasticity of substitution between fuel oil and coal? (c) Suppose that fuel oil is $1.00 per gallon and coal is $80 per ton. Draw the output expansion path on the diagram and describe the marginal and average cost curves. (d) Repeat (c). assuming that the price of coal has increased to $120 per ton.

Consider two identical firms competing as Cournot oligopolists in a market with demand p(Q)=100-0.5Q. Both firms have total costs,TC=10q where 10 is the marginal cost of production. ( Here Q represents total output in the market whereas q represents firm level output.)

(b)   Now assume that the firms collude. They again play a one-shot game. What is the output that each firm should produce in order to sustain the collusion? Find the market price, and profits of each firm. Are their profits higher when they collude than when they compete as Cournot oligopolists?

(a) If your utility is represented by u(x,y) = min(x+2y,2x+y);what do you indifference curves look like?

(b) Given your answer in (a), obtain the MRS (marginal rates of substitution).

(c) Suppose the prices of x and y are px = $3 and py = $1 and you have 100 dollars. What would you choose?

(d) If px decreases to $1; what would you choose?

(e) Use the Slutsky decomposition to decompose the total price effect into the substitution effect and income effect when px decreases from $3 to $1