303ex1-PQs

303ex1-PQs - ECON 303 Practice Questions for Exam 1 1....

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ECON 303 Practice Questions for Exam 1 1. Suppose a firm’s current profit is $80 million, the interest rate is 6%, and the expected growth rate of the firm’s profit is 5%. a. What is the value of the firm if it continues for 3 years? ( Answer: $315.5 million ) b. What is the value of the firm if it continues for ever? ( Answer: $8,480 million ) c. What is the value of the firm on the ex-dividend date if it pays it current profit as dividend and continues for ever? ( Answer: $8,400 million ) 2. Suppose a firm’s current profit is $50 million and interest rate is 4%. a. What is the value of the firm if it continues for 3 years with no growth in profit? ( Answer: $188.8 million ) b. What is the value of the firm if it continues for 3 years with 3% annual growth in profit? ( Answer: $197.1 million ) c. What is the value of the firm if it continues for ever with 3% annual growth in profit? ( Answer: $5,200 million ) # Units of Activity Total Benefit Total Cost 0 0 0 1 10 5 2 18 11 3 25 18 4 29 27 5 31 38 3. On Table A, a. What is the marginal benefit from the second unit of activity? ( Answer: 8 ) b. What is the marginal cost of the third unit of activity? ( Answer: 7 ) c. What is the activity level that maximizes net benefit? ( Answer: 3 ) d. What is the level of net benefit at four units of activity? ( Answer: 2 ) 4. On Table A, a. What is the marginal benefit from the first unit of activity? ( Answer: 10 ) b. What is the marginal cost of the fifth unit of activity? ( Answer: 11 ) c. What is the maximum level of net benefit? ( Answer: 7 ) d. What is the level of net benefit at five units of activity? ( Answer: -7 ) 5. Suppose total benefits and total costs are given by B(Y) = 90Y - 4Y 2 and C(Y) = 5Y 2 . a. What is the marginal benefit? ( Answer: 90 - 8Y ) b. What is the marginal cost? ( Answer: 10Y ) c. What is the value of Y that maximizes net benefits? ( Answer: 5 ) d. What is the maximum level of net benefits? ( Answer: 225 ) 6. Suppose total benefits and total costs are given by B(Y) = 50Y - 6Y 2 and Page 1 of 4
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This note was uploaded on 10/31/2010 for the course ECON 303 taught by Professor Shrestha during the Spring '08 term at VCU.

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303ex1-PQs - ECON 303 Practice Questions for Exam 1 1....

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