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Final_BA_315_Fall_04 - Final Exam BA 315 Economy Industry...

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1 Final Exam Student Name:___________ BA 315: Economy, Industry and Competitive Analysis HW Team#:_____________ Fall 04 CRN: 10726, 10727 Ali Emami The duration of this exam is two hours. Please answer all questions. For solutions to problems, show all calculations. Correct answers without calculation will not receive any credit. Please limit each answer to space provided below each question. Part A: Economic Profit, Normal profit 1. [10 points] Ali and his son jointly own the Ali & Son Company. Consider the following information on Ali & Son Company. Assume that Ali provided the company $2,000,000 of his own money for purchase of required inventory of rugs. In addition, Ali and his son provide a free car to company. They pay an annual lease of $8,400 for the company’s car from their own money. Also, Ali asked his son to resign from his job at corporation XYZ and act as the sale manager of their company for $24,000 a year plus 10% commission on annual sales. Suppose the company is housed in a personal property owned by Ali and his son for $18,000 a year lease whereas the property could be rented in market for $40,000 a year. Assume that the market average risk free return on investment is 10%, and Ali’s son’s salary at XYZ corporation was $80,000 a year. Assume that company sells 100 rugs per year at average price of $5,000 each. Assume company purchases each rug for $2000. Fill in required cells in the following tables. Please show your calculations inside cells. Categories ($ per year) Explicit Costs ($ per year) Implicit Costs ($ per year) Cost of Goods Sold Utilities ($4800) Insurance ($3000) Labor costs (Ali’s Son) Rent Cost of Capital Cost of Car Total Explicit Costs Total Implicit Costs Total Revenue Accounting Profit Economic profit Normal profit Part B: Demand and Supply 2. [10 points] Suppose that the demand ( Q d ) and supply ( Q s ) functions for restaurant labor are Q d = 36- 2W Q s = 4 W a. Equilibrium wage (W) is $__________ and equilibrium quantity is __________ units. (2.5 points) b. If government establishes a minimum wage $2 more than the above equilibrium wage, then ___________(labor surplus), (unemployment) of _______ units occurs. (2.5 points) c. As the result of the government minimum wage, labors welfare surplus changes from $___________to $_________ indicating a total ______(loss), (gain) of $__________. (2.5 points) d. As the result of the government minimum wage, employers welfare surplus changes from $___________to $_________ indicating a total ______(loss), (gain) of $__________. (2.5 points) 3. [5 points] Currently ZZZ company has $2 millions total revenue and $1 millions total economic cost. Assume that the demand price elasticity for company’s product is given as -0.4. Suppose that the manager reduces the price of company’s product by 25%. Calculate company’s profit after reduction in the price of company’s product.
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2 Part C: Marginal Benefit and Marginal Cost 1 .[5 points] An agency is having problems with personal phone calls made during working hours. Each minute of a personal call costs the agency $1 in wasted wages. The agency decides to hire operators to monitor calls in order to attain the optimal number of personal calls (minimize possible total cost of personal calls). If operators receive $45 an hour, how many operators should the agency hire?
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