1. The demand function for the Baye Firm is: P = 100 – 0.5 Q

The firm’s total cost function is: 1500 – 10 Q + 0.5Q2

(a) Is this a perfectly competitive firm? (5 Points)

(b) Find the output level and price at which the firm’s total revenue is maximized. (10 Points)

(c) Find the output level and price at which the firm’s total profit is maximized. (10 Points)

(d) Is demand elastic, unitary elastic, or inelastic at the output level where total revenue
is maximized? (10 Points)

(e) Is demand elastic, unitary elastic, or inelastic at the output level where total profit
is maximized? (10 Points)

(f) What is the value of the firm’s total fixed cost at the output level where total revenue
is maximized? What about at the output level where total profit is maximized? (10 Points)

(g) What is the value of the firm’s average variable cost at the output level where total
revenue is maximized? What about at the output level where total profit is
maximized? (10 Points)

Selling price is $10/tin. The cost is $8/tin This includes $6 of direct material and $1.50 of direct labor. Direct labor is 1 hour per 100 tins. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. The breakdown for manufacturing overhead includes 85% of variable costs.

1a. What is the standard fixed manufacturing overhead cost per tin?

b. The Volume Variance is $750 Favorable. How many units were actually produced during the year?

c. How much is total budgeted fixed manufacturing overhead?

d. The Controllable Variance is $3250 Unfavorable. What was the total dollar amount for actual manufacturing overhead?

e. What are the total standard hours allowed for actual production?

6. The Labor Quantity Variance is $300 Unfavorable. How many total actual hours were worked?

7. What is the total standard cost of direct materials for total actual production?

8. Total Material Price Variance is $16,800 Unfavorable. What was the actual direct material cost for total actual production?

13. Which of the following statements is INCORRECT about trading on margin A. It is a leveraged equity investment. B. Stocks purchased on margin are registered in street name. C. It increases payoff both on the upside and downside. D. In general, a limit-buy order may be placed to limit potential losses.

17. Consider the following short sale example: an investor borrows 100 shares of a stock from the broker, put down 50% as the initial margin, and sells the stock at $50/share in the market. If the maintenance margin is 30%, how much can the stock price rise before the investor gets a margin call?

      A. 56.79

      B. 57.69

      C. 59.69

      D. 58.79

18. Regarding the previous question, suppose the stock price later goes up from $50/share to $75/share, put a ____________may limit the potential loss for the investor?

      A. limit sell order at $60/share

      B. limit buy order at $60/share

      C. stop loss order at $60/share

      D. stop buy order at $60/share

Suppose the market for toilet paper is perfectly competitive. The long run equilibrium is characterized by the price being $2 per roll with 20 firms making toilet paper, each selling 5 million rolls per week for a total of 100 million rolls being sold each week. A pandemic then breaks out, where people are afraid that the world will run out of toilet paper.

a) what happens in the short run to:

-1) The price of a roll of toilet paper?

-2) The number of firms making toilet paper?

-3) The amount of toilet paper made each week by each firm?

-4) weekly firms profits?

b) What happens in the long run in terms of (1-4) above, and what is the mechanism that brings about that change, assuming demand remains permanently elevated as people in the future are constantly worried that another pandemic will occur?

c) Graph the original long run equilibrium, the short run equilibrium, and the return to a long run equilibrium on two graphs, one for the market and one for the individual firm.

Suppose XER Inc. is a monopoly that produces a drug that cures the common cold. The weekly (inverse) market demand* for its product takes the form P=580-6Q, where Q is measured as the number of tablets. The marginal and average costs are $100 per tablet.

Solve for:

(a)  Solve for the weekly level of output (measured in the number of tablets per week) that will be produced by XER Inc. if it maximizes profits

(b) Solve for

(i) the profit-maximizing price-per tablet charged,

(ii) total weekly revenue and

(iii) the amount of economic profits earned by XER, Inc.

(c)

(i) Calculate the weekly quantity sold

(ii) Calculate the total weekly revenues for XER, Inc. IF the firm operated under perfectly competitive market conditions (i.e., assume that that XER faces the same demand curve but that, as in competitive markets, the equilibrium price and quantity is where P=MC.)

(d)

Compare answers to sub-questions a & b to those for sub-question c and assess the differences in output, prices, total revenues, total costs and economic/excess profits under the two different market conditions.

1. Here is a selection from an abstract of a recent study entitled “The effect of health insurance coverage on the use of medical services” by Michael Anderson, Carlos Dobkin, and Tal Gross (2010). NBER Working paper No. 15823.

Substantial uncertainty exists regarding the causal effect of health insurance on the utilization of care. Most studies cannot determine whether the large differences in healthcare utilization between the insured and the uninsured are due to insurance status or to other unobserved differences between the two groups. In this paper, we exploit a sharp change in insurance coverage rates that results from young adults “aging out” of their parents’ insurance plans to estimate the effect of insurance coverage on the utilization of emergency department (ED) and inpatient services. [In the US, children are eligible for insurance coverage through their parents’ insurance only up to their 23rd birthday, at which point they lose eligibility.] Using the National Health Interview Survey (NHIS) and a census of emergency department records and hospital discharge records from seven states, we find that aging out results in an abrupt 5 to 8 percentage point reduction in the probability of having health insurance. We find that not having insurance leads to a 40 percent reduction in ED visits and a 61 percent reduction in inpatient hospital admissions.

1. What two groups are being compared in this study?
2. Identify at least one important methodological difference between the design of this study and the RAND HIE. Give a hypothetical reason why this difference would bias the results.
3. Are the findings of this study generally consistent with the findings from the Oregon Medicaid Experiment?

The table lists foreign exchange rates for August 30, 2018. On that day, how many dollars would be required to purchase 1,200 units of each of the following: British pounds, Canadian dollars, EMU euros, Japanese yen, Mexican pesos, and Swedish kronas? Use the direct quotation for your calculations. Round your answers to the nearest cent.

Drosophila (Pty) Ltd is currently forecasting its short-term financing needs and it requires your assistance in determining these needs and the possible costs of financing. The following information has been gathered and passed on to you.
The bookkeeper extracted an aging report from the system and determined that 40% of sales were paid for in the same month that the sales were made and the remainder was paid 1 month later (all sales were on credit).
The company has access to a R1 000 000 revolving credit facility (line of credit) at a cost of 12% interest per year, assuming 365 days per year. No administrative fees are applicable.
All purchases and other expenses are paid in cash.
Sales from March, April and May were as follows:

Expected sales for June, July and August are as follows:

Additionally, purchases amount to 50% of sales and other costs amount to R200 000 per month but exclude a depreciation expense of R5 000 per month.

REQUIRED:
Draw up a cash budget for this company for June, July and August and determine how much the requisite short-term financing by way of the revolving credit facility will cost (in rand terms) if utilised. Use the space below to make your preliminary calculations and present your cash budget in the space provided below where indicated

Onta Enterprises is seeking to expand operations and is considering increasing production capacity by purchasing the latest plant and equipment.  The following two plants are being considered for acquisition as they are technically superior to the current plant and will enable higher production volumes with lower cost inputs.  The finance department has projected the cash flows for the life of the plant and has asked you as the investment manager to advise the Board on which of these plants to acquire. Onta’s current cost of capital is 12%.

The following information relates to the two plants that are being considered:

Calculate the:

2.1       Payback Period for both plants.  (Answers must be expressed in years, months and days.)                                                                                                                                                          (6)

2.2       Accounting Rate of Return for Plant Beta on initial investment.                                            (4)

2.3       Net Present Value of each plant. (Round off amounts to the nearest Rand.)                       (9)

2.4       Based on your results in 2.1.3 which plant should be accepted?                                         (1)

Onta Enterprises is seeking to expand operations and is considering increasing production capacity by purchasing the latest plant and equipment. The following two plants are being considered for acquisition as they are technically superior to the current plant and will enable higher production volumes with lower cost inputs. The finance department has projected the cash flows for the life of the plant and has asked you as the investment manager to advise the Board on which of these plants to acquire. Onta’s current cost of capital is 12%.

The following information relates to the two plants that are being considered:

Calculate the:

2.1       Payback Period for both plants. (Answers must be expressed in years, months and days.)   

2.2       Accounting Rate of Return for Plant Beta on initial investment.   

2.3       Net Present Value of each plant. (Round off amounts to the nearest Rand.)

2.4       Based on your results in 2.1.3 which plant should be accepted?

Note: All workings must be showed and answers must be typed in.