The local movie theater industry has a demand curve of P=26-.2Q for a movie showing (please note the decimal in front of the 2). It has a supply curve (MC curve) of $2, because the theater figures for each customer there will be a cleanup cost afterwards. In reality, a theater might sell food and drinks for extra profits, but this one does not.

1. What is allocative efficiency? What is the price of a ticket and number of patrons (quantity) that will result in allocative efficiency? Why is this price not practical?
2. If the theater, the only one in town, wishes to price as a monopoly, what would the price of a ticket and quantity (number of patrons) be?
3. If this theater would like to price discriminate by charging some $20 and letting them sit in the front rows, regular customers the monopoly price, and senior citizens who do not sit in the front $5, by how much would the $20 price increase profits over a regular monopoly price? By how much would the $5 price increase profits over the regular monopoly price? By having three prices instead of one, how much would profit increase by? Explain your answers and demonstrate with a graph.
4. Assume another theater opens so there are two theaters in town. The marginal cost and demand curve remain the same for the industry, but there are now two firms instead of one. Use the Cournot model of duopoly to determine the new movie theater ticket price with two theaters instead of one. Explain your answer and include a graph.
5. What would be the Lerner Index for these two theaters? What does this number measure?

The local movie theater industry has a demand curve of P=26-.2Q for a movie showing (please note the decimal in front of the 2). It has a supply curve (MC curve) of $2, because the theater figures for each customer there will be a cleanup cost afterwards. In reality, a theater might sell food and drinks for extra profits, but this one does not.

1. What is allocative efficiency? What is the price of a ticket and number of patrons (quantity) that will result in allocative efficiency? Why is this price not practical?
2. If the theater, the only one in town, wishes to price as a monopoly, what would the price of a ticket and quantity (number of patrons) be?
3. If this theater would like to price discriminate by charging some $20 and letting them sit in the front rows, regular customers the monopoly price, and senior citizens who do not sit in the front $5, by how much would the $20 price increase profits over a regular monopoly price? By how much would the $5 price increase profits over the regular monopoly price? By having three prices instead of one, how much would profit increase by? Explain your answers and demonstrate with a graph.
4. Assume another theater opens so there are two theaters in town. The marginal cost and demand curve remain the same for the industry, but there are now two firms instead of one. Use the Cournot model of duopoly to determine the new movie theater ticket price with two theaters instead of one. Explain your answer and include a graph.
5. What would be the Lerner Index for these two theaters? What does this number measure?

1. You are the CEO of “I am the top 1%” Corporation, which has a capital structure of 60% equity and 40% debt. The estimated net income of your company is $600K. Your capital budget is $800K for the coming year. If you follow the residual dividend models, how much dividend you can pay and what is your pay-out ratio? What happens to dividend when estimated net income is $400K or $800K?
2. Discuss the advantages and disadvantages of Residual dividend policy.
3. What are the steps you consider in setting your dividend policy?
4. Explain the concept of DRIP with an example.

The Company Liv is considering three process alternatives for its new investment in Ottawa.
Process A has an $80K fixed cost and $4 variable cost for each product (unit) produced.
Process B has a $120K fixed cost and $2 variable cost for each product (unit) produced.
Process C has a $200K fixed cost and $1 variable cost for each product (unit) produced.

1. Draw the graph of fixed, variable and total costs of all processes in an MS Excel file. (2 points)
2. Which process option will cost least in total if Company Liv is planning to produce exactly 3000 units? (1 point)
3. Up to how many units Process A is the most feasible (cheapest) option? (1 point)
4. At how many units Process A and Process B have equal total costs? (1 point)
5. How many more units can be produced if Process B is selected instead of Process C when the total budget is $220,000? (1 point)

Please show your graph and answers in one MS Excel file.

Firm X wants to raise $10 million to grow and attract new investors. Firm X operates in an inflationary environment and has been using the LIFO inventory valuation method to minimize their net earnings and thereby reduce their taxes. The CEO asks you to estimate the change in net earnings that would happen if they switched to FIFO.

After reviewing Firm X’s finances, you estimate that pre-tax income would increase by $1.2 million if the company adopted the FIFO method. However, the switch would result in approximately $400k of additional taxes. The overall effect would result in an increase of $800k in net earnings. The CEO tells you to prepare the tax return on a LIFO basis for inventory, but to prepare statements on a FIFO basis to be sent to potential investors.

1. How will the switch to FIFO affect the Balance Sheet?
2. What are the legal and ethical implications of the CEO’s recommendation?
3. If you switch to FIFO for taxes as well as financial reporting purposes, net income will increase by $800k. Comment on the possibility of paying $400k in income taxes to obtain an additional $800k of net income.

The Hotel has two operating departments. Rooms and F&B. 70% of the hotel's total revenue is earned from room sales and 30% of the total revenue is earned from F&B sales.

Rooms department's contribution margin ratio is 60% and F&B department's contribution margin ratio is 50%. If the fixed cost of the hotel is $400,000, and the management is targeting a before -tax profit of $150,000, what is the required sales revenue? (Rounded to whole numbers)

A.$964,912

B.$795,230

C.$1,234,502

D.$701,754

3. Vacation Island has only one hotel on the entire island. The demand schedule to rent a room for a-night at the hotel is given bellow. Price per night Quantity demanded $150 0 $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 a) Calculate the hotel’s total revenue and its marginal revenue. Fill in the table below. Price Quantity Total Revenue Marginal Revenue $150 0 - $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 b) The marginal costs are listed in the table below. What price will the hotel charge to maximize its profit? Explain. Quantity Marginal Cost 0 - 1 $40 2 $43 3 $50 4 $61 5 $76 6 $95 c) How many rooms will be rented, when the hotel maximizes its profit? Explain.

Government is considering building a public park in a small town ìBelleî. The cost of building this park is 120. There are three people in this town, Arnold, Ben, and Carrol. Each personís valuation of the park is 20, 30, and 80 respectively. But, government does not know these valuations.

(a) The government decides whether to build this park by majority voting. If majority supports building the park, then cost will be equally shared. What will be the outcome of majority voting?

(b) Government suggests that the cost of building the park will be financed through the government revenue in other towns. But government will only take this project when the benefit is higher than the cost. Government want survey these three to know the benefit of the park. Do you think this is the right plan to get the benefit of the park? Explain why or why not.

(c) Government suggests another plan. Government will survey these three to get the valuation of the park. If the sum of benefit is greater than the cost, cost will proportionately shared among three according to the reported valuation. For example, the reported valuation is 50, 60, and 70, then each cost share will be 50/(50+60+70), 60/(50+60+70), and 70/(50+60+70). Do you think this is the right plan to get the true valuation? Explain why or why not.

C Corporation has an S corporation election in effect. During the 2017 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2017, the corporation paid dividends to shareholders in the amount of $120,000.

How much taxable income, in total, must the shareholders of the corporation report on their 2017 tax returns?

$120,000 dividend income is taxable income. Should total include $200k ordinary income?