problemset1

# problemset1 - EC332, Spring 2009, Prof. Jordi Jaumandreu...

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EC332, Spring 2009, Prof. Jordi Jaumandreu Problem set #1 1. (Cabral) Consider the following values of the price elasticity of demand: Cigarettes 0.5 US luxury cars in the United States 1.9 Foreign luxury cars in the United States 2.8 Based on these values, provide an estimate of the impact on revenues of a 10% increase in the price of each of the above three products. 2. (Cabral) You own and operate a facility located in Taiwan that manufac- tures 64-megabit dynamic random-access memory chips (DRAMs) for personal computers(PCs). One year ago you acquired the land for this facility for \$2 mil- lion, and used \$3million of your own money to f nance the plant and equipment needed for DRAM manufacturing. Your facility has a maximum capacity of 10 million chips per year. Your cost of funds is 10% per year for either borrowing and investing. You could sell the land, plant and equipment today for \$8 million; you estimate that the land, plant, and equipment will gain 6% in value over the coming year. (Use a one-year planning horizon for this problem.) In addition to the cost of land, plant, and equipment, you incur various operating expenses associated with DRAM production, such as energy, labor, raw materials, and packaging. Experience shows that these costs are \$4 per chip, regardless of the number of chips produced during the year. In addition, producing DRAMs will cause you to incur f xed costs of \$500,000 per year for items such as security, legal, and utilities. a. What is your cost function,

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## This note was uploaded on 11/09/2010 for the course CAS ec399 taught by Professor Tack during the Spring '10 term at BCUC.

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problemset1 - EC332, Spring 2009, Prof. Jordi Jaumandreu...

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