Suppose the US domestic demand for bicycles can be described as the following demand function: Q^D=25000-150P. The supply function of bicycles is assumed to be Q^S=15000+50P.

1. We assume that the bicycle market is competitive. What is the equilibrium price and its equilibrium quantity?

2. Calculate the consumer surplus, producer surplus, and the total surplus.

3. Suppose that due to a trade agreement, the US bicycle market now welcomes foreign bicycles and starts importing bicycles from other countries. The world market is competitive, and its price is at $40, i.e. each imported bicycle will cost a US consumer $40 and the supply of imported bicycles is sufficiently large. The trade agreement impacted the market and it has moved to a new equilibrium. What is the new equilibrium price for the US market?

4. At the new equilibrium, what is the quantity demanded for bicycles now? How many bicycles will domestic producers produce? And how many bicycles are from imports?

5. What is the total surplus in this market now? Compare your answer to the total surplus calculated in part 2. What is the net gain in social welfare?

6. Has the U.S. as a whole benefited by opening up trade to the rest of the world? If it has not, explain why. If it has, does it imply that EVERYONE wins in this event? Who might have losses?

Discusses four reasons that firms should care about sustainability. Which one of the reasons would the CEO of Enbridge use to explain why Enbridge cares about Sustainability?

In the Enron case, the CEO was found guilty. However, it affected the workers more than it affected him. Would you agree? What are your thoughts on this case and how it ended?

BUSINESS AND SOCIETY
1 PAGE ESSAY QUESTION
(I'll give you thumbs up.)

In your opinion, should the same person be both CEO and Chair of the Board of Directors?

Suppose you are the CEO of Nike and the world is coping with an economic recession. Would you change the corporate strategy? If so, what changes would you make and why? If not, why not?

Mobile Oil Company

The Mobile Oil company owns land in Alaska that might contain natural oil. The current value of the land is worth $90,000. However, if natural oil is present at the site, the oil will be worth $800,000. If the company decides to extract the oil from the land, the company will have to pay $100,000 in drilling costs.

Before drilling, the company has an option to carry out a seismic survey at the proposed drilling site. If they do not choose to carry out the survey, the company believes that there is a 0.25 probability that the proposed drilling site actually contains natural oil. However, if the company chooses to carry out the survey, the company will have to pay $30,000 for the test to be completed.

If the seismic survey is conducted, there are two possible outcomes. In other words, the survey will show either favorable or unfavorable result that natural oil is present. Based on historic records, if the results are favorable, the probability of hitting oil increases to 0.50. Even if the survey is unfavorable, there is still a chance that natural oil is present. However, if this is the case, the probability of hitting oil reduces to 0.14285.

If Mobile Oil decides not to drill, the company will sell their land at its current value. However, the land is considered worthless if the land is drilled. In addition, if the land has value (i.e. not drilled on), assume that the current value of the land does not change based on the results of the survey.

A summary of the financial parameters is shown below in Table 1, where costs are in terms of thousands of dollars.

Table 1: Financial parameters ($000)

Survey cost

-$30

Drilling cost

-$100

Current value

$90

Oil value

$800

Land value if drilled

$0

1. Develop a decision tree for this problem so that the expected monetary value can be evaluated.

a. HINT: Be sure to reference the tables that have been provided.

b. HINT: You will use the probabilities listed in Table 2 only once in order to develop a decision tree for this problem correctly.

2. Develop a formula that determines the highest expected monetary value that Mobil Oil can anticipate. In addition, develop a formula that will determine the course of action that Mobil Oil will take (i.e. Survey Do not Survey).

Please list out the excel formula's for each. I was not able to include the table for the data when I copied over.

Comments and Hints

Several probabilities are needed in order to construct a decision tree correctly. These probabilities are listed below in Table 2. However, to understand the probabilities that are given to you, please consider the following notation. For example, P(OP) is the probability of oil being present and P(OP|F) is the

probability of oil being present given (i.e. “|” ) that a favorable survey result was obtained. A

description of the abbreviations used in this problem is shown in the list below.

• OP Oil is Present

• ONP Oil is Not Present

• F Favorable Survey

• U Unfavorable Survey

The probabilities that are necessary to fill out the decision tree correctly are shown in the table below.

Table 2: Decision Tree Probabilities

P(OP) 0.25000%

P(ONP) 0.75000%

P(FS) 0.30000%

P(US) 0.70000%

P(OP|FS) 0.50000%

P(OP|US) 0.14285%

P(ONP|FS) 0.50000%

P(ONP|US) 0.85715%

Hector Company has developed the following standard costs for its product for 2019:

The company expected to produce 30,000 units of Product A in 2020 and work 90,000 direct labor hours.

Compute the following variances showing all computations to support your answers. Indicate whether the variance are favorable or unfavorable?

Marvelly company manufactures and sells dolls. The company plans to manufacture and sell 80,000 units of the dolls for $4,000,000 in 2020 with the following information: The cost for each doll consists of direct material $15, direct labour $10, and variable manufacturing overhead $5. The salaries of the factory manager and supervisors are estimated at $300,000 per annum, depreciation of machinery, factory equipment, and buildings is budgeted at $250,000 per year, and the rental of factory building is $200,000 per year.