1
Final Exam, Winter 2005
Student Name:___________
BA 315:
Economy, Industry, and Competitive Analysis
HW Team#:____________
Department of Finance
CRN:
Charles H. Lundquist College of Business
University of Oregon
Ali Emami
Answering the following questions please use words, or graphs, or math or any combinations
to support your answers.
Correct answers without explanations (intuitive, graphical, or
mathematical) will not receive any credit.
Please limit your answers to the space provided and
be very brief in your explanations.
Part A:
Demand and Supply
1.[15 points]
Suppose that the demand and supply functions for good
X
are
Q
d
= 80  2
P
Q
s
=  20 + 3
P
a.
Equilibrium price is $_20_____ and equilibrium quantity is _40_______ units.
Calculations:___
80 2
20 3
100
5
20
ds
QQ
P
P
PP
=⇒−=
−
+⇒
=⇒
=
,
40
==
b.
The price elasticity (point elasticity) at equilibrium values of price and quantity
you calculated in (a) is ____1______________.
(Show calculations)
calculations:__
20
21
40
d
d
P
Q
P
E
PQ
∆
−
×
=
−
∆
________________________________
c.
If you raise the price by 2%, given the demand price elasticity calculated in (b),
the total revenue will change by ___0_____________%.
(Show calculations)
Calculations:______
%
1%
%
%
%%
%
0
Q
QP
P
T
RPQ
∆
−=
⇒ ∆ =− ∆
∆
∆
=∆+∆=
−∆+∆=
______
Part B:
Economic Profit, Normal profit
1.[15 points]
Consider a firm that employs some resources that are owned by the owner of the
firm.
When accounting profit is zero, economic profit
a.
must also equal zero.
b.
is sure to be positive.
c.
must be negative.
d.
cannot be computed accurately, but the firm is breaking even nonetheless.
(Show your reasoning):
0
.0
econ
acc
implicit
TR TC
TC
acc
π
+
=−
−
⇒
<
=
14243
142 43
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document2
Part C:
Marginal Benefit and Marginal Cost (15 points)
1.[20 points]
A radio manufacturer is experiencing theft problems at its warehouse and has
decided to hire security guards to reduce the thefts.
The firm wants to minimize
the net cost of warehouse thefts.
Number of
Security
Guards
Number of
Radios
Stolen Per Week
Cost of stolen
Radios
Reduction in
Cost, i.e., MB or
MRP
MC, or
Wage
0
25
25x$40=$100
0

0
1
15
15x$40=$600
$1000600=$400
$130
2
10
10x$40=$400
$600400=$200
$130
3
6
6x$40=$240
$400240=
$160
$130
4
4
4x$40=$160
$240160=$80
$130
5
3
3x$40=$120
$160120=$40
$130
a.[10 points]
If each security guard is paid $130 a week and the cost of a stolen radio is $40,
how many security guards should the firm hire?
(Show calculations in table)
Rule:___hire three Guards based on
,,
MRP
W or MB
MC
≥≥
_____________
b.[10 points]
If the cost of a stolen radio is $40, what is the MOST the firm would be willing to
pay to hire the first security guard?
Why? (Show your reasoning)
Calculations:__First guard provides $400 MRP or MB, therefore we should be willing to
pay up to $400.
Part D:
Macroeconomic and Competitive Position (10 points)
1.[5 points]
Suppose the economy in your country is near full employment.
Briefly explain
how fiscal policies can
inversely
affect your competitive position compared to
your rivals in another country?
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '08
 AliEmami
 Supply And Demand, value chain activities, E B D C B E B

Click to edit the document details