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Review_Final_BA_315_Fall_04

# Review_Final_BA_315_Fall_04 - BA 315 STUDY GUIDE FOR FINAL...

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1 BA 315: STUDY GUIDE FOR FINAL EXAM Fall 04 Ali Emami Your final exam is on Wednesday December 8, 2004 at 6 p.m. in MCK 240C. The final exam is open book and notes. The following questions are provided as a guide for your preparations for final exam. My office hours for final week are 8:00-10:00 a.m. Monday and Tuesday. Please stop by if you need help (no emails please). Part A: Economic Profit, Normal profit 1 Sweet Stuff, a candy store, had total revenues last year of \$500,000. Payments for payroll, cost of goods sold, rent, and supplies totaled \$336,000. The owner invested \$200,000 in the firm, although she could have invested in bonds paying a 12% return. What is the firm's economic profit? a. ! \$36,000 b. \$140,000 c. \$164,000 d. \$300,000 e. none of the above 2 Kate recently invested \$250,000 in a new scooter rental company. At the end of the year, the company's income statement reported revenues of \$180,000 and costs of \$135,000. As long as the normal rate of return is less than _____, the company's economic profit was greater than zero. a. 8% b. 18% c. 57% d. 72% 3 Suppose you inherited \$100,000 and decided to invest the money in a boutique (although you could have bought bonds paying a guaranteed 10% annual return). At the end of the first year, your accountant reported that your sales had exceeded your costs by \$10,000. What is your economic profit for the year?

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2 B: Demand and Supply 1. Suppose that the demand and supply functions for good X are Q d = 75 - 3 P Q s = - 20 + 6.5 P 2. Suppose that the world consists of three countries A and B and C. Assume the following demand and supply functions for computer brand X in each country. Country Demand Supply Country A No Domestic Demand RM - P = Q A A s 4 8 8000 + Country B No Domestic Demand RM - 2P + 000 = Q B B s 6 10 Country C Y 0.5 + 6P - 000 2 = Q C C d , 0 No Domestic Supply Q d C and Y C denote quantity demanded and income in country C respectively. Q s A , and Q s B denote quantities supplied by countries A and B respectively. RM A and RM B denote price of raw material in country A and B respectively. Assume that initially Y C = \$40,000, RM A = \$1000, and RM B =\$1000. a) Draw a three panel graph where left hand side panel shows the supply of A, the middle panel shows the supply of B, and the right panel shows the interaction between the demand from country C and total (combined) supply from both A and B. Calculate (derive) the equation for total supply of good by countries A and B in country C’s market. b) Assume that both countries A and B supply their product to country C. Calculate equilibrium values for prices paid by C and received by A and B. Calculate numbers of computers sold by A and B to C. Calculate consumer surplus in country C.
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Review_Final_BA_315_Fall_04 - BA 315 STUDY GUIDE FOR FINAL...

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