You have the following information for goods X and Y: Goods Price elasticity Cross-price elasticity Income elasticity X 0.4 -0.7 -1.8 Y 0.9 -0.7 0.6 Fill out the spaces in the following statements: Based on the price elasticity, we can say that good X is price ___________________ Based on the cross-price elasticity, we can say that goods X and Y are _______________ Based on the income elasticity, we can say that good Y is _________________

Calculate the contribution margin (selling price minus variable costs) and gross margin

(selling price minus all manufacturing costs) per gallon for each type of paint and total firm-wide

profit under each of the following scenarios:

Scenario A Current production, including the Virginia contract

Scenario B Without either the Virginia contract or the promotion to expand sales of commercial

paint

Scenario C Without the Virginia contract but assuming the promotional campaign is undertaken

and sales of commercial paint do in fact double

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What insight is provided by a comparison of Scenarios A and B? What insight is provided by

a comparison of Scenarios B and C?

Traffic Paint

Currently, Wellesley has the traffic paint contracts for the states of Pennsylvania, North Carolina,

Delaware, and Virginia. Of last year’s total production of 380,000 gallons, 90% was traffic

paint. Of this amount, 88,000 gallons were for the Virginia contract. Each state has unique specifications

for color, thickness, texture, drying time, and other characteristics of the paint. For example,

paint sold to Pennsylvania must withstand heavy use of salt on roads during the winter.

Paint for North Carolina highways must tolerate extended periods of intense heat during summer

months.

The process of bidding on a traffic paint contract begins with a road test under the supervision

of the National Association of Highway Paints (NAHP), an independent organization supported

by state funds. NAHP designates a certain stretch of highway to serve as the road test site.

Any paint manufacturer may apply stripes of their paint at the test site. NAHP monitors the test

site and reports the results to the state highway department. State personnel review the reports

and invite the manufacturers of the best-performing paints to submit bids. The firm that submits

the lowest bid wins the contract.

Contracts, which normally cover a five-year period, specify only the price per gallon and

quality requirements such as drying time and road-life. The timing of deliveries is determined

later based on state work schedules and weather constraints. Demand is highly seasonal, as states

do most of their highway painting in June, July, and August. The total amount of paint a state will

order is not determined until spring, when the states know how much of their highway budget

remains after winter snow removal costs have been paid.

After the paint is produced, the state must test the paint before approving it for shipment. A

sample is sent to the state laboratory, which may take up to two months to perform the testing. In

the meantime, Wellesley must store all the manufactured paint in its warehouse. At times, the

warehouse has been filled to capacity, and drums of paint are stored in the aisles, production

areas, and any available inch of space.

Due to the high cost of shipping paint, most paint producers can be competitive on price

only in locations fairly close to their production facilities. Accordingly, Wellesley has enjoyed an

advantage in bidding on contracts in the eastern states close to Virginia. However, one of their

biggest competitors, Heron Paint Company of Houston, Texas, is building a new plant in North

Carolina. With lower costs due to their efficient new facility and their proximity, Heron will become

a major competitive threat.

Commercial Paint

Wellesley’s commercial paint line includes interior and exterior house paints in a wide range

of colors formulated to approximate authentic colonial colors. Because of the historical association,

the line has been well received in Virginia. Most of these paints are sold through paint and

hardware stores as the stores’ second or third line of paint. The large national firms such as Benjamin

Moore or Sherwin Williams provide extensive services to paint retailers such as computer

ized color matching equipment. Partly because they lack the resources to provide such amenities

and partly because they have always considered the commercial paint a sideline, Wellesley has

never tried to market their commercial line aggressively.

Mrs. W. is worried about the future of the company. The firm’s strategic goal is to provide a

quality product at the lowest possible cost and in a timely fashion. After absorbing the shock of

losing the Virginia contract, Mrs. W. wondered whether the firm should consider increasing production

of commercial paints to lessen the company’s dependence on traffic paint contracts. Her

son, who manages the day-to-day operation of the firm, believes they can double their sales of

commercial paint if they undertake a promotional campaign estimated to cost $15,000. The average

price of traffic paint sold last year was $9 per gallon. For commercial paint, the average price

was $11.

Cost Data

Charlie Oliver has assembled the following data to evaluate the financial performance of the

two lines of paint. The primary raw material used in paint production is latex. The list price for

latex is $13.50 per pound. If the firm uses more than 150,000 pounds annually they qualify for a

10% discount; 450 pounds of latex are needed to produce 1,000 gallons of traffic paint. Commercial

paint requires 325 pounds of latex per 1,000 gallons of paint. In addition to the cost of the

latex, other variable costs are as shown below.

Raw materials cost per gallon of paint: Traffic Commercial

Camelcarb (limestone) 0.38 0.54

Silica 0.37 0.52

Pigment 0.12 0.38

Other ingredients 0.06 0.03

Direct labor cost per gallon 0.46 0.85

Freight cost per gallon 0.78 0.43

Last year, overhead costs attributable to the traffic paint totaled $85,000, including an estimated

$25,000 of costs directly associated with the Virginia contract. Overhead costs attributable

to the commercial paint are $13,000. Other manufacturing overhead costs total $110,000. Charlie

estimates that $9,000 of this amount is inventory handling costs that will be avoided due to the

loss of the Virginia contract. Both the remaining manufacturing overhead and the general and

administrative costs of $140,000 are allocated equally to all gallons of paint produced.

Given the following:

Call Option: Strike Price = $60, expiration costs $6

Put Option: Strike Price = $60, expiration costs $4

In excel, show the profit from a straddle for this. What range of stock prices would lead to a loss for this?

state two other familiar cases in which price discrimination exists. Does price elasticity of demand make the practice effective? How?

Typed please

Price discrimination

Give a real life example (2 examples) of the third-degree price discrimination (different from anyexamples in the lecture or in textbook). How the consumers are selected into one or another price group. Explain, which of the group of the consumers has a more elastic demand, and why.

XYZ stock price and dividend history are as follows: Year Beginning-of-Year Price Dividend Paid at Year-End 2015 $ 130 $ 5 2016 144 5 2017 120 5 2018 125 5 An investor buys six shares of XYZ at the beginning of 2015, buys another three shares at the beginning of 2016, sells one share at the beginning of 2017, and sells all eight remaining shares at the beginning of 2018. a. What are the arithmetic and geometric average time-weighted rates of return for the investor? Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2015, to January 1, 2018. What is the dollar-weighted rate of return? (Hint: If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.)

In 2017, X Company had the following selling price and per-unit variable cost information:

In 2017, total fixed costs were $643,000.

In 2018, there are only two expected changes. Direct material costs are expected to decrease by $8 per unit, and fixed selling and administrative costs are expected to increase by $10,000. What must unit sales be in order for X Company to break even in 2018?

We have discussed in past modules how government can impact the economy (price floor, price ceiling, regulating monopolies, and externalities). The government is, no doubt, an economic influencer. So, let's do it one more time but remember, this is an economic discussion, not a political one.

1. Your opinion on the role of government in our economy. Please offer a compelling economic argument for your opinion here (supply & demand). What are the economic implications of bigger government? What are the economic implications of smaller government? What would be the most allocatively efficient option?
2. What lessons were taught to children in the cartoon "The Little Red Hen?" How could those lessons be valuable today as they relate to the role of government?