Consider the market for Drug A, which is produced by a price-taking firm that receives a price of $100 from the industry market and decides, considering only private costs, to produce a quantity of 200 units. These decisions were guided by the firm’s goal, as always, to maximize its profits.

A government regulatory agency is contacted about significant water pollution that occurs as a result of production of Drug A. The agency examines the market and concludes that the social marginal cost for Drug A is $120 per unit when 200 units are produced. It further concludes that, were social and private costs both considered in making the output decision, 150 units would be produced instead of 200. The government therefore requires the manufacturer to produce 150 units instead.

Answer the following questions:

1. Draw a graph for the firm described, including all of the above information.
2. Calculate the reduction in total spending that occurs when the quantity produced changes from the amount the firm originally wanted to produce to the amount recommended by the regulatory agency.
3. Calculate the reduction in social costs that occurs when the quantity produced changes from the amount the firm originally wanted to produce to the amount recommended by the regulatory agency.

On December 31, 2020, Berclair Inc. had 360 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 88 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $550 million. Also outstanding at December 31 were 30 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $56 per share. During 2021, the market price of the common shares averaged $70 per share. Required: Compute Berclair's basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Do not round intermediate calculations.)

Harmony Audio Company manufactures two models of speakers, DL and XL. Based on the following production and sales data for September 2016, prepare (a) a sales budget and (b) a production budget.

a. Prepare a sales budget.

b. Prepare a production budget.

1a.

A "political business cycle" suggest that:

Multiple Choice

• cyclical swings in the economy are produced by the inherent instability found in capitalist economies.

• there is a trade-off among goals that tends to make the economic policies of state and local governments procyclical.

• the tools of fiscal policy may be used for political gains and reelection.

• the cyclically adjusted budget is a better indicator of the state of the economy than the actual budget.

1b.

What are the goals of fiscal policy?

Multiple Choice

• Increase deflation and increase nominal GDP.

• Increase profits and reduce expected returns.

• Control inflation and promote full employment.

• Increase nominal wages and reduce real interest rates.

1c.

From the information provided, determine whether you are given an Aggregate Supply or Aggregate Demand Schedule and, if Aggregate Supply, the time frame associated with the price level and output. HINT: You may want to plot out the points on a graph.

Multiple Choice

• Aggregate Demand

• Short Run Aggregate Supply

• Long Run Aggregate Supply

• Immediate Short Run Aggregate Supply

On December 31, 2017, Berclair Inc. had 260 million shares of common stock and 6 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $200 million. The income tax rate is 40%. Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2013. The options are exercisable as of September 13, 2017, for 30 million common shares at an exercise price of $56 per share. During 2018, the market price of the common shares averaged $70 per share. In 2014, $62.5 million of 8% bonds, convertible into 6 million common shares, were issued at face value.

Required: Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018.

Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,705,000 five years ago; if the land were sold today, it would net you $1,780,000 aftertax. The land can be sold for $1,748,000 after taxes in five years. You will need to install $5.35 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $625,000 at the end of the project. You will also need $575,000 in initial net working capital for the project, and an additional investment of $50,000 in every year thereafter. Your production costs are .48 cents per stamp, and you have fixed costs of $1,050,000 per year. If your tax rate is 21 percent and your required return on this project is 10 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.)

What is the bid price?

1. HBO has MC=0 of giving someone access to their platform. Suppose there are two possible markets of people in the US, Movie Buffs and Movie Casuals. There are 50 of each. The demand of Movie Buffs for HBO is D(p)= 100 - 2p if p is greater than and equal to 25   and D(p)= 50 if p is less than 25. The demand of Movie Casuals for HBO is D(p)= 50- 2p
2. Calculate the market demand of both Movie Buffs and Movie Casuals for HBO. (It might help you to sketch the two demand curves separately and then sum them – but you don’t need to include that here.) D(P)=
3. 2. Suppose HBO faces the market demand curve you calculated in (a). Calculate HBO’s profit maximizing quantity and price,  and . (1pt)
   3. Calculate the profits of the monopolist (don’t worry about fixed costs). (1pt)
   4. A data gathering company “CMU Analytics” offers its service to HBO. Their algorithm can identify whether people fall into the Movie Buff category or the Movie Casual category.  This would allow them to sell to the two markets separately at different prices. What kind of price discrimination is this? (1pt)

1. Scenario 11.4 - The Gutter
   
   A rodent infestation has left a landlord with a major cleanup job; in fact, the cleanup will consist of ripping out all the walls and ceilings of an 1860 square foot house to replace them. A trip to the local home improvement store reveals that 4'x8' sheets of drywall have three price points as indicated in the table. Another consideration for the landlord is that he is equipped with only a humble half-ton pickup truck, that can hold at most 20 sheets. His truck sips fuel, so he considers only wear and tear on his vehicle at $5 to haul all the sheets he will use for the job. The holding percentage is 20%. The landlord believes the entire job - all walls and ceiling - will require 10,080 square feet of drywall.
   

   Purchase Quantity	Price Per Sheet
   1-20	$9.40
   21-100	$9.30
   101 or more	$9.20

   
   
   Use the information in Scenario 11.4 to determine the total holding cost resulting from purchasing the optimal number of sheets per order. Assume he can buy only an integer-multiple of sheets.

   		$38.27
   		$92.92
   		$64.23
   		$15.59

On December 31, 2017, Berclair Inc. had 400 million shares of common stock and 14 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 120 million shares of its common stock as treasury stock. Berclair issued a 6% common stock dividend on July 1, 2018. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2018, was $700 million. Also outstanding at December 31 were 63 million incentive stock options granted to key executives on September 13, 2013. The options were exercisable as of September 13, 2017, for 63 million common shares at an exercise price of $60 per share. During 2018, the market price of the common shares averaged $70 per share. The options were exercised on September 1, 2018. Required: Compute Berclair’s basic and diluted earnings per share for the year ended December 31, 2018. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

• Generate data of length n=100 from a Gaussian AR(2) model with phi1=0.5 and phi2=0.2 and input variance sigma^2=1. Afterwards, pretend the values of phi1, phi2 and sigma^2 are unknown.
  i. Use the R function ar() to fit an AR(p) model to your data. As options for the ar() function, first use aic = TRUE. What estimated order did aic minimization give for your data? Try three different fitting methods, method="yule-walker", method="ols"and also method="mle". Do you see significant differences between the methods?
  ii. Repeat the above by setting aic = FALSE and method="yule-walker". First select order p=1; what do you observe in your estimates? Now select order p=3 and then p=5; what do you observe?
  iii. Fit an ARMA(p,q) model to your data using the R function arima(). Specify the orders (p,q) to be fitted as either (2,0) or (1,1) or (2,1). Compare your results under these three specifications. [Note that ARMA(p,q) is the same as ARIMA(p,0,q) so in R function arima() you need to select the middle order to be 0.]