Solve for price elasticity of demand (E_d) and price elasticity of supply (E_s) between each pair of prices ($8 and $7, and $7 and $6) and determine the total revenue that could be earned at each price. Show your work!

Cove’s Cakes is a local bakery. Price and cost information follows:

Required:

1. Calculate Cove’s new break-even point under each of the following independent scenarios:

a. Sales price increases by $1.80 per cake.

b. Fixed costs increase by $530 per month.

c. Variable costs decrease by $0.34 per cake.

d. Sales price decreases by $0.60 per cake.

2. Assume that Cove sold 475 cakes last month. Calculate the company’s degree of operating leverage.

3. Using the degree of operating leverage, calculate the change in profit caused by a 5 percent increase in sales revenue.

1. We discussed two price indexes, the Consumer Price Index (CPI) being an example of an index that has fixed quantity weights from the base period and the GDP Deflator being an example of an index that has current quantity weights. Suppose we have an economy in which there are only three goods produced and consumed: rice, electricity, and cellphones. The prices and quantities for the years 2018 and 2019 are given in the following table:

1. 1.1) Determine the equivalent of current dollar GDP for this economy in 2018 and in 2019. What was the percentage change in nominal GDP from 2018 to 2019?

1. 1.2) Determine the equivalent of the CPI (use 2018 as the base) for 2018 and for 2019 in this economy.

1. 1.3) Compute the equivalent of the GDP deflator (again use 2018 as the base) for 2018 and 2019 in this economy.

1. 1.4) Compute the rate of price increase from 2018 to 2019 using the two different price indexes.

1. 1.5) If 2018 is the base period determine the equivalent of 2019 GDP in constant 2018 dollars for this economy. What was the percentage change in real GDP from 2018 to 2019?

1. 1.6) Based on your answer to Question 1.5, what do you think is likely to have happened to unemployment rates between 2018 and 2019? How does this relate to your result in Question 1.1?

The question has all the given information.

1. Data on price and sales volume in two different periods are given.

Calculate and interpret composite indices and their absolute differences. Was companies’ price politics right? What do you suggest for next month?

The spot price for gas today (March 19, 2020) is $1.661 MMBtu.  The futures price today for gas to be delivered in June 2021 is $2.245.  Your company is a gas purchaser/user and is interested in the hedging process.

1. You are a speculator and believe the price of gas will increase.  You have a chance to buy a June 2021 futures contract at $2.245.  Would you go short or go long on a June 2021 futures contract for 10,000 MMBtus?  

2. It is now December 31, 2020 On this day, the spot price for natural gas is $2.450 per MMBtu and the June 2021 futures price is $2.310 per MMBtu.  What is the amount of gain or loss related to your contract as of December 31, 2020?

3. As a speculator the last thing you want to do is either take delivery of or actually sell natural gas.  Explain how you would get out of the contract you purchased in part e. prior to the June 2021 delivery date.

Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months.

1. What is the price of the option if it is a European call?

2. What is the price of the option if it is an American call?

Cove’s Cakes is a local bakery. Price and cost information follows:

Required:
1. Calculate Cove’s new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.)

a. Sales price increases by $1.90 per cake.



b. Fixed costs increase by $525 per month.



c. Variable costs decrease by $0.35 per cake.



d. Sales price decreases by $0.70 per cake.



2. Assume that Cove sold 380 cakes last month. Calculate the company’s degree of operating leverage. (Do not round intermediate calculations. Round your answer to 2 decimal places.)



3. Using the degree of operating leverage calculated in Requirement 2, calculate the change in profit caused by a 12 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.))

Consider an option on a non-dividend-paying stock when the stock price is $40, the strike price of $38, the risk-free interest rate is 10% per annum, the volatility is 35% per annum, and the time to maturity is five months.

1. What is the price of the option if it is a European call?

2. What is the price of the option if it is a European put?

Cove’s Cakes is a local bakery. Price and cost information follows:

Required:
1. Calculate Cove’s new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.)

a. Sales price increases by $1.50 per cake.



b. Fixed costs increase by $460 per month.



c. Variable costs decrease by $0.43 per cake.



d. Sales price decreases by $0.60 per cake.



2. Assume that Cove sold 415 cakes last month. Calculate the company’s degree of operating leverage. (Do not round intermediate calculations. Round your answer to 2 decimal places.)



3. Using the degree of operating leverage calculated in Requirement 2, calculate the change in profit caused by a 12 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.))