Econ11Fall2007ProblemSet_2AnswersDueOct3

Econ11Fall2007ProblemSet_2AnswersDueOct3 - A Yezer THE...

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THE GEORGE WASHINGTON UNIVERSITY Department of Economics A. Yezer Answers to Second Problem Set in Econ 11-10 Fall 2007 Special Problem: My initials, AMY, are the symbol of AmREIT, a real estate investment trust that develops real estate and holds and manages a portfolio of retail properties (shopping centers, malls, etc). The profile of competitors is given below. DIRECT COMPETITOR COMPARISON AMY DDR EQY WRI Industry Market Cap: 51.84M 6.74B 1.93B 3.46B 199.92M Employees: 64 641 217 457 75 Qtrly Rev Growth (yoy): -15.00% 41.60% 10.10% 10.40% 17.10% Revenue (ttm): 59.51M 962.56M 249.16M 604.77M 102.31M Gross Margin (ttm): 60.38% 85.66% 72.12% 83.26% 41.17% EBITDA (ttm): 24.92M 663.84M 151.46M 409.66M 24.01M Oper Margins (ttm): 27.99% 47.03% 42.87% 45.76% 9.39% Net Income (ttm): -4.10M 228.55M 52.91M 146.43M 1.62M EPS (ttm): -0.589 2.240 1.037 3.077 0.08 P/E (ttm): N/A 24.22 25.21 13.00 28.25 PEG (5 yr expected): 1.25 1.9 3.22 2.33 1.21 P/S (ttm): 0.88 6.97 7.67 5.66 3.34 DDR = Developers Diversified Realty Corp. EQY = Equity One Inc. WRI = Weingarten Realty Investors Industry = Property Management AmReit is smaller in revenue than the listed competitors but employment is about average for the industry. Revenues are low as is revenue per employee. Last year was a tough year for AmREIT compared to either its close competitors or the industry in general. AmREIT actually reported a loss (negative net income) as opposed to substantial earnings of close competitors or the industry in general. 1a. Tony's Tex-Mex Restaurant has 5 cooks. Each cook can produce either 100 burritos per hour or 300 tacos per hour. Assume that each cook works eight hours day. Find the equation of Tony’s daily PPF between burritos and tacos. Plot the PPF. Follow the steps from the example of Mr. Chips in class. Burritos per day = B = 100 H B = 100 (hours of burrito cooking) Tacos per day = T = 300 H T = 300 (hours of taco cooking) H = Total cooking hours per day = 5 cooks x 8 hours/cook = 40 hours per day
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H = 40 = H B + H T - constraint on input of hours is the key to the PPF Now you have to substitute out H B and H T because a PPF relates outputs not inputs. But you know from the production relations that: B/100 = H B and T/300 = H T So now substitute for H B and H T in the hours constraint to obtain: H = 40 = H B + H T = (B/100) + (T/300) and then solve for the equation of the PPF in standard form with B as the “dependent variable” to be plotted on the vertical axis: B = 4000 – (100/300)T = 4000 – (1/3)T, so 4000 is the intercept on the B axis, -1/3 is the slope and 12,000 if the T intercept. This PPF is plotted below: 1b. If burritos sell for $3 and tacos sell for $.90, draw the iso-revenue lines facing Tony and tell him what he should produce to maximize revenue and how much revenue he will receive? ? The slope of these iso-revenue lines = -P taco /P burrito = -.9/3. This is NOT as steep as the PPF whose slope is -1/3 and we have the classic case of a corner solution in which Tony produces 1,000 burrito's
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This note was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11Fall2007ProblemSet_2AnswersDueOct3 - A Yezer THE...

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