ZCM manufactures camera drones. The company currently has one existing model (ZC1G) on the market. Given the growing interest in aerial photography, the existing model (ZC1G) has been a success and the company is currently considering introducing a new model to replace the existing model. Prior to developing the new model, the company has conducted a survey to determine the features users are looking for in camera drones and try to incorporate these features in the new model. The company spent $200,000 on the survey. The new model will be named ZC-2G. The main selling points for the new model (ZC-2G) are a longer flying time and an advance stability system for steady shot, allowing better picture quality. To achieve a longer flying time, ZCM has developed a new lighter battery which will be fitted onto the new drone (ZC-2G). ZCM has spent $750,000 to develop the new battery. The project is estimated to last for five years. The estimated sales volume is 2,000, 3,000, 3,000, 4,000 and 3,000 per each of the next five years respectively. The selling price will be set at $1,400 per unit in the first year and is expected to decrease by 10 percent every year due to the competitive nature of the industry. The variable cost will be $700 per unit in the first year and the fixed cost for the project will be $400,000 per year. Both variable cost and fixed cost are expected to remain constant over the five-year period. Furthermore, the company will need to invest $960,000 to purchase the necessary equipment. This $960,000 will be 100 percent depreciated straight line over 6 years. The equipment can be sold for $220,000 (before tax) at the end of the project. The project will require ZCM to make an investment in net working capital of $200,000 at the beginning of the project. Subsequently, the net working capital at the end of each year (year 1 to year 4) will increase by 10 percent every year. ZCM has a 35 percent corporate tax rate and a WACC of 19 percent. ZCM believes that the risk of the new project is similar to the risk of the company’s existing operations. As previously stated, ZCM currently has one model of camera drone (ZC-1G) on the market. The introduction of the new model (ZC-2G) will likely take customers away from the existing model (ZC-1G). Since the company will only cease production of the ZC-1G model in three years’ time, the company estimates that this will result in a decrease in operation cash flows of $300,000 per year in the first three years of the project’s life (year 1 to year 3). Based on the above information, should the company proceed with the project?

1. If the number of discouraged workers decreases because many of them start to look for work, everything else remaining the same, then the

Select one:

a. labour force participation rate will decrease.

b. non labor force will increase.

c. employment rate will decrease.

d. the labor market population will increase.

e. none of the above.

2.  

Initially, you earn $10 income per hour, and the price level is 100. Your income now increases to $20 per hour and the price level increases to 175. What happens to your purchasing power?

Select one:

a. It doubles in value

b. It increases in value by less than double

c. It increases in value by more than double

3.  

Suppose a trade union and a firm agree to increase the wage rate by the same percentage as the increase in the Consumer Price Index. If the CPI increases by 5 percent, then the real income of workers will

Select one:

a. decrease by 5 percent, accounting for bias in the calculation of the CPI.

b. increase by 5 percent as well.

c. increase by more than 5 percent, accounting for bias in the calculation of the CPI.

d. increase by less than 5 percent, accounting for bias in the calculation of the CPI.

e. remain unchanged, accounting for bias in the calculation of the CPI.

4.  

Refer to the table below, which shows price data for a hypothetical economy, between which two years did the price level increase the most?

Select one:

a. 2000 and 2001

b. 2001 and 2002

c. 2002 and 2003

d. 2003 and 2004

e. 2004 and 2005

Question 1 Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of $30, how much is the before tax price? Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco products. Explain in detail who pays the tax (buyers and/or sellers) and discuss the role the price elasticity of demand plays in determining the impact on prices and quantity of tobacco products sold. Be explicit about any assumptions made in developing predictions.

Question 2 a) Assume a perfectly competitive firm’s total cost (TC) for different levels of output Q is given by:

Q TC

0 50

1 100

2 140

3 170

4 190

5 210

6 230

7 260

8 300

9 350

10 410

In a table format for the range of output (Q) provided determine: average total costs, average fixed costs, average variable costs and marginal costs. At a price of $35 how many units will be produced in the short run? At this price how many units will be produced in the long run?

b) Explain the differences between a monopolistically competitive market and an oligopolistic market? Give examples of industries with these market structures to explain your answer.

Question 3

Some State Governments around Australia have pursued policies to merge Local Government Councils. Explain the economic rationale for these policies, use cost curves and related evidence to support your arguments.

You want to buy 100 shares of XYZ stock, and you don't want to pay more than $20 per share for it. Which option strategy would be the least expensive?

Use letters in alphabetical order to select options

1. A Buy one XYZ 20 call for $2.

2. B Sell one XYZ 20 call for $4.

3. C Buy one XYZ 20 put for $1.

4. D Sell one XYZ 20 put for $3.

You want to set up a covered call position on 1,000 shares of XYZ stock. Your goal is to collect the greatest premium, and you don't mind being assigned. Which of these would you probably do if XYZ were trading for $40 per share?

Use letters in alphabetical order to select options

1. A Buy 10 calls on XYZ stock with a strike price of $25.

2. B Sell 10 calls on XYZ stock with a strike price of $30.

3. C Sell 10 calls on XYZ stock with a strike price of $45.

4. D Sell 10 puts on XYZ stock with a strike price of $50.

You sell to open ten ABC 40 puts for $2 each. What's the best thing that can happen now?

Use letters in alphabetical order to select options

1. A ABC stock stays at $40, and the puts expire worthless.

2. B ABC stock stays at $40, and you buy back the puts for a profit.

3. C ABC's price rises to $50, and you're assigned to buy the stock at $40 per share.

4. D ABC stock falls to $30, and you exercise the puts to sell the stock at $40 per share.

Suppose the aggregate demand for honey in a small country is given by Q^D = 100 − P and the aggregate supply is Q^S = P. The international price of honey is P^I = 60, and the world market is willing to buy or sell any amount at that price. Let all quantities be given in gallons and all prices in dollars per gallon. Suppose the country initially starts out with closed borders, and cannot import or export at all.

Suppose now the country enters into an international free trade deal. The deal eliminates all subsidies and price supports, and the country opens up to import and export from the world market.

(j) What is the equilibrium domestic price, production, and consumption in the honey market with free trade? Depict it graphically. Will the country be an importer or exporter of honey?

(k) Which groups are better off with free trade relative to autarky (with no subsidies/price restrictions)? Which are worse off?

(l) Does total surplus increase or decrease relative to the competitive equilibrium with no trade. Can you find a set of transfers that would make everybody at least as well off as in the no-trade equilibrium? Now suppose the government wants to provide some relief to domestic consumers, so it imposes an export tariff of $τ per gallon on honey imports.

(m) What is the new equilibrium in the honey market in terms of τ? Depict it graphically for τ < 10.

(n) What is producer surplus, consumer surplus, government transfers, and social welfare after the tariff?

(o) Suppose the government decides to give all its tariff revenue to consumers to compensate for the loss from trade. Is there any level of tariff that would make consumers as well of as in autarky without completely shutting down trade?

Comm Devices (CD) is a division of Worldwide Communications, Inc. CD produces pagers and other personal communication devices. These devices are sold to other Worldwide divisions, as well as to other communication companies. CD was recently approached by the manager of the Personal Communications Division regarding a request to make a special pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that CD produce 12,000 units of this special pager. The following facts are available regarding the Comm Devices Division.

For each of the following independent situations, calculate the minimum transfer price, and determine whether the Personal Communications Division should accept or reject the offer.

(a)

The Personal Communications Division has offered to pay the CD Division $105 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 10,000 pagers to existing customers in order to meet the request of the Personal Communications Division. (Round answer to 0 decimal places, e.g. 125.)

Minimum transfer price = ?

(b)

The Personal Communications Division has offered to pay the CD Division $150 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 16,000 pagers to existing customers in order to meet the request of the Personal Communications Division. (Round answer to 0 decimal places, e.g. 125.)

Minimum transfer price = ?

(c)

The Personal Communications Division has offered to pay the CD Division $100 per pager. The CD Division has available capacity.

Bond #1: US Treasury note with a 2% coupon due in 5 years issued at a price of par ($100).
Bond #2: ABC Corp note with a 4% coupon issued at a yield to maturity of 4.2%. ABC’s credit is rated BBB.

 Both bonds were issued and will mature on the same date.
 Coupons on both bonds are stated in annual terms above, but paid semi-annually.
 The Fed Funds rate is 0.75%.
 Below is the “benchmark” US Treasury “on-the-run” Yield Curve on date of issuance:

1y 1.00% 2y 1.25% 3y 1.50% 5y 2.00% 7y 2.50% 10y 3.00%

1. What is the Yield to Maturity of Bond #1?

2. Was Bond #2 issued (sold) at a par, premium or discount price? (You can answer this without knowing

   the specific price.)

3. What do bond market participants call the “difference” between the yields to maturity of Bond #2 and

   Bond #1?

4. What type of risk is most likely the largest component of this “yield difference?”

1. 2%
2. Discount price
3. Spread
4. Default Risk

Assume you purchased Bond #1 and held it for 3 years and the treasury yield curve is unchanged (rates are exactly the same as those listed above), and answer the following questions (36 points): a. What is the new number of years to maturity for bond #1? b. How many cash flow payment dates are left? c. What is the discount rate we should use to value Bond #1 in this new environment? d. Using the same Present Value of Future Cash Flows Model shown above to compute the new price of Bond #1 (show your work).

There is a positive relationship between two variables if

they move in the same direction.

they move in opposite directions.

neither variable moves.

one variable changes and the other does not.

One of the most obvious clues to the relative scarcity of a product is

its current market price.

the variations in available sizes.

the quality of the product.

the limited selection of colors.

Recall the Application about the harmattan and how it affects the price of cocoa to answer the following question(s).

According to this Application, the longer than usual harmattan has impacted the supply curve for cocoa pods, shifting the supply curve to the ________ due to a(n) ________ in cocoa yields.

left; decrease

right; decrease

left; increase

right; increase

If the number of automobile manufacturers decreases,

the supply of automobiles increases.

the demand for automobiles decreases.

the supply of automobiles decreases.

the demand for automobiles increases.

If the price elasticity of demand is 2, this means that a ________ increase in price causes a ________ decrease in quantity demanded.

15%; 100%

20%; 40%

15%; 10%

30%; 20%

Claudia spends her income on two goods, DVD rentals and chewing gum. She considers both goods to be normal goods. If Claudia's income increases and the prices of the two goods remain constant, she will:

rent fewer DVDs and purchase less chewing gum.

rent more DVDs and purchase less chewing gum.

rent fewer DVDs and purchase more chewing gum.

rent more DVDs and purchase more chewing gum.

Recall the Application about finding estimates of elasticities of demand to answer the following question(s).

According to the Application, the regular price elasticities of demand found at www.ers.usda.gov are reported as

positive numbers.

negative numbers.

dollars per unit of foreign currency.

foreign currency units per dollar.

Netflix customers in Australia could soon be facing steeper monthly charges. The popular streaming service on Monday confirmed that it recently tested higher subscription prices for new customers in Australia. The company—which has nearly 100 million global subscribers and expanded to Australia in 2015—has reportedly tested raising prices for new subscribers by as much as three Australian dollars (AU). Netflix’s test resulted in some Australian customers seeing price increases for the streaming service’s Basic plan (going from AU$8.99 to AU$9.99 per month), while Netflix’s Standard plan increased AU$2 to AU$13.99 and the Premium plan increased AU$3 to AU$17.99 per month, according to The Australian. Netflix confirmed the tests, but emphasized that it has not yet formally announced any permanent price increases. “We continuously test new things at Netflix and these tests typically vary in length of time,” the company said in a statement. “In this case, we are testing slightly different price points to better understand how consumers value Netflix. Not everyone will see this test and we may not ever offer it generally.”

Addendum from the lecturer: They increased the prices to $9.99, $13.99 and $17.99 respectively from 1st July 2017. And in 2019 they increased the premium plan to $19.99, while leaving the other two prices constant.

Discuss why you think Netflix conducted this test and what you think they found from that test based on their later decisions.

Refer in particular to concepts from what price elasticity of demand is and how it is calculated and used, its relationship with revenue, and relevant determinants of price elasticity of demand.

Use JAVAfor this program

Program Description

You work in a local gift shop that is currently running a large sale. You have been asked to create a program to calculate the total of a user’s purchases and determine if they qualify for a discount. Use the following steps to create the program:

1. Ask the user the price of the item they wish to purchase.
2. Ask the user the quantity they wish to purchase.
3. Ask the user to enter the name of the item they wish to purchase.
4. Calculate the subtotal of the purchase. The subtotal of the purchase is calculated by the following equation:

Subtotal = Price * Quantity

5. Calculate the discount amount using the equation and table below:

Discount Amount = Subtotal * (Discount/100)

6. Calculate the discounted cost of the purchase. The discounted cost of the purchase is calculated by the following equation:

Discounted Cost = Subtotal - Discount Amount

7. Create a String object in memory to hold the text: “Discount Calculation Utility”.
8. Display the text at the top of the output (See Sample Input and Output)
9. Display the item name, price, quantity, subtotal, discount, and total.
10. Format the output of the program exactly as shown in the sample output (including indentation, spacing, and a number of decimal places).

Sample Input and Output (formatting, spacing, and indentation should be as shown below)

What is the price of the item you wish to purchase? 17.99
What is the quantity you wish to purchase? 3
What is the name of the item? T-Shirt

Discount Calculation Utility
Item Name:        T-Shirt
Price: $17.99
Quantity:             3
Subtotal: $53.97
Discount: $5.40
Discounted Cost: $48.57