Final_BA_315_Winter_05 - Final Exam Winter 2005 BA 315...

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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
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2 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 $1000-600=$400 $130 2 10 10x$40=$400 $600-400=$200 $130 3 6 6x$40=$240 $400-240= $160 $130 4 4 4x$40=$160 $240-160=$80 $130 5 3 3x$40=$120 $160-120=$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?
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Final_BA_315_Winter_05 - Final Exam Winter 2005 BA 315...

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