: In this question we are going to return to the wonderful island of Alleybowlia where the inhabitants absolutely love bowling. Remember, that the island boasts one of the best bowling alleys of its continent and all citizens go play in the alley all weekend long. An entrepreneur in a neighbouring island has figured out a new way of producing super-smooth bowling balls (SSBB), which are supposed to guarantee plenty of strikes (which is a good thing in bowling). As a shipment of SSBB is arriving on the island, the citizens are busy figuring out how much they are willing to pay for them. The following table lists the citizens’ willingness to pay for their first, second and possibly third SSBB.

For instance, citizen A is willing to pay $500 for her first SSBB, $340 for the second and $130 for the third. In contrast, consumer B is not willing to pay anything for a third SSBB since she only needs or wants two.

A. Suppose the boat arrives and there are only seven SSBBs available for sale. Assume that it has cost $200 to produce and ship each of the seven SSBBs.

1. What is the range of prices compatible with market equilibrium?

2. Pick the highest market equilibrium price and calculate consumer surplus.

3. What is the producer surplus at the highest market equilibrium price?

4. What is total surplus at the highest market equilibrium price?

5. What is total surplus at the lowest market equilibrium price?

B. Now assume instead that the cost of shipping and producing each ball is $350, and any quantity can be produced.

6. What is the equilibrium price and quantity in this case?

7. Calculate consumer surplus, producer surplus and total surplus.

C:13-57 Bonnie died on June 1, 2018, survived by her husband, Abner, and two sons, Carl and Doug. Bonnie’s only lifetime taxable gift was made in October 2015 in the taxable amount of $6.25 million. She did not elect gift splitting. By the time of her death, the value of the gifted property (stock) had declined to $5.1 million. Bonnie’s executor discovered the items shown below. Amounts shown are the FMVs of the items as of June 1, 2018.
Cash in checking account in her name $ 199,750
Cash in savings account in her name 430,000
Stock in names of Bonnie and Doug, joint tenants with right of survivorship. Bonnie provided all the consideration ($3,000) to purchase the stock. 25,000
Land in names of Bonnie and Abner, joint tenants with right of survivorship. Abner provided all the consideration to purchase the land. 360,000
Personal residence in only Bonnie’s name 450,000
Life insurance on Bonnie’s life. Bonnie was owner, and Bonnie’s estate was beneficiary (face value) 5,000,000
Trust created under the will of Bonnie’s mother (who died in 2000).
Bonnie was entitled to all the trust income for life, and she could will the trust property to whomever she desired. She willed it to her sons in equal amounts. 9,000,000
Bonnie’s debts, as of her date of death, were $60,000. Her funeral and administration expenses were $9,000 and $71,000, respectively. Her estate paid state death taxes of $65,000.
The executor elected to deduct the administration expenses on the estate tax return.

Bonnie’s will included the following:
I leave my residence to my husband Abner.
$250,000 of property is to be transferred to a trust with First Bank named as trustee. All of the income is to be paid to my husband, Abner, semiannually for the rest of his life. Upon his death the property is to be divided equally between my two sons or their estates. I leave $47,000 to the American Cancer Society.
Assume the executor elected to claim the maximum marital deduction possible. Compute the following with respect to Bonnie’s estate:
a. Gross estate
b. Taxable estate
c. Adjusted taxable gifts
d. Estate tax base and basic exclusion amount portable to Abner
e. Tentative tax on estate tax base
f. Federal estate tax payable

Use the limits for 2019. The Tax Cuts and Jobs Act of 2017 increased the unified credit to $4,417,800, the tax on a basic exclusion amount of $11.18 million.

Use the following data to answer questions 35-41:

The country of Fabrica produces and consumes textile goods. The following information tells you their production levels and prices for the only three goods they produce and consume:

• 2009:
• Towels -- Price = $12; Quantity = 120
• Shirts -- Price = $10; Quantity = 240
• Bottles of Fabric Softener -- Price = $1; Quantity = 50

• 2010:
• Towels -- Price = $20; Quantity = 150
• Shirts -- Price = $12; Quantity = 325
• Bottles of Fabric Softener -- Price = $5; Quantity = 90

What is the nominal GDP for each year?

Using 2009 as your base year, what would the real GDP be for each year?

Using 2009 as your base year, what would the GDP deflator be for each year?

Using a GDP deflator method, what would the inflation rate be?

Use the following basket for a CPI method: 12 towels, 24 shirts, and 5 bottles of fabric softener.

What is the cost of the basket for each year?

Using 2009 as your base year, what would the CPI be for each year?

Using a CPI method, what would the inflation rate be?

Let’s return to Tallahassee hotel market we considered in Problem Set 1, but now from the perspective of a hotel manager. Consider a hotel which can supply an unlimited number of hotel rooms at the constant marginal cost c = 20 per room per night, so that the hotel’s total cost function is given by C(q) = 20q. Assume that demand for hotel rooms in Tallahassee takes two possible values: on game days, demand is described by the demand curve q = 100−p, while on non-game-days demand is described by the demand curve q = 60 − 2p.

1. First suppose that the hotel acts as a price taker.

(a) What does it mean for the hotel to act as a price taker? What condition determines a price taker’s optimal supply decision?

(b) Assuming the hotel acts as a price taker, what will be the equilibrium price and quantity sold on game days? What about on non-game-days? (Remember, the hotel’s marginal cost is constant!)

(c) Briefly discuss, without solving, how your results in (b) would change if the hotel instead had increasing marginal costs (say for example MC(q) = q rather than MC = 20).

Suppose International Digital Technologies decides to raise a total of $200 million, with $100 million as long-term debt and $100 million as common equity. The debt can be mortgage bonds or debentures, but by an iron-clad provision in its charter, the company can never raise any additional debt beyond the original $100 million. Given these conditions, which of the following statements is CORRECT?

A = Annual

1. Compute the continuously compounded yields of these five bonds.
2. Compute the continuously compounded zero rates for maturities of 1,2,3,4, and 5 years.

Suppose that X, Y and Z are normally distributed where X ≈ N(100,100), Y ≈ N(400, 400) and

Z ≈ N(64,64). Let W = X + Y + Z.

a) Describe the distribution of W, give a name and parameters E(W) and Var(W).

b) Use Excel or R to generate 200 random values for X, Y and Z. Add these to obtain 200 values for W. Create a histogram for W. In Excel use the NORMINV(rand(),mean, sd) function.

c) Estimate E(W) and Var(W) using the random numbers.

A U.S. company, sells items abroad. Daisy prices many of these transactions in the currency of the customer. Following are four such transactions made in the last accounting period, plus the direct exchange rates for each date:

Prepare the journal entries made by Daisy Brands to record the above sale and collection transactions.

There is a Bond at 5%, with a fixed coupon of 100 that will not default.

On a graph with Price as the Y-Axis and Yield on the X-Axis, show the relationship between price and yield.

A surplus may occur if:

a. the government imposes a price ceiling.

b. the government imposes a price floor.

PLEASE ANSWER ONLY IF YOU ARE 100% CORRECT