ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408059
Author: William A. McEachern
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 3P
To determine
The investment at varying expected
Concept Introduction:
Expected Return- The expected value of the potential outcomes or the expected profit or loss with associated known expected rates of return is the Expected Return from an investment
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
13. (Use this information to answer qustion 13 - 16) Suppose a household
solves the following two-period consumption-savings problem
max u(c₁) + Bu(c2)
{C1,C2}
s.t. aw Y1 - C1
C2y2
(1+r)a
with u(c) = √c where c₁ is consumption at time 1, c2 is consumption at
time 2, y₁ is houshold income at time 1, 2 is houshold income at time
2 and w is the initial wealth. Suppose the incomes of the household are
$50 in time 1 and $210 in time 2. The initial wealth is $100, the discount
factor is 0.975 and interest rate is 5%. Solve for the household's choice of
C1.
(a) 125.12
(b) 126.58
(c) 175.16
(d) 341.88
14. Now a government wants to introduce income tax in both time 1 and time
2 {1, 2} to finance a construction project that costs $50 in time 1 and
another $52.5 in time 2. Which ones of the following are the household
intertemporal budget constraints.
(a) y1 + 1/2 =C1+
1+1
Y2
(b) w+y1 + = C₁ +
1+r
1+r
(c) wy1T1 +
Y2
T2
1+r
Y2
1+r
= €1 + 12
1+r
(d) wy171 + =C1+
1+r
C2 (1+72)
1+r
15. Solve for the…
2. Exercise 8.2
Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5
million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $5 million; accounting depreciation was $40,000, although
the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his
variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income
would be about $50,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (Ignore taxes.)
What is Bowen's accounting profit?
$1,560,000
$1,190,000.00
$1,200,000.00
$1,550,000
What is Bowen's economic profit?
$1,190,000.00
$1,200,000.00
$1,550,000
$1,560,000
22.Use the table below that shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds is 6%.
Expected rate
of return (%)
R&D
(millions of $)
15
0
12
10
9
20
6
30
3
40
(a)Graph the marginal cost and marginal benefit curves of R&D spending in the graph below. Be sure to label the axes. What is the optimal level of R&D spending?
(b)Now assume that the interest-rate cost of funds is 9%. Show on the graph what happens to the interest-rate cost of funds curve. What is the optimal level of R&D spending?
Chapter 13 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
Knowledge Booster
Similar questions
- 1arrow_forward3. Mr. Willy is determined to raise his revenue of selling blankets in the market. He is contemplating whether to raise the price of his product or not. He noticed that as he lowered the price from P300 to P200, his sales rose from 300 pieces to 550 pieces of blankets per day. If you are the consultant of Mr. Willy, what would you advise him to raise his revenue and profit? Explain your answer briefly and concisely. (Note: computation is required to justify your answer for this question) Hint: Use the concept of elasticity to answer this question.arrow_forward7. (10 points) Joe has moved to a small town with only one golf course. His demand curve is P = 120-2Q where Q is the number of rounds of golf he plays per year. The manager of the golf course offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds of golf as he wants to at $20 per round. The golf course's Marginal Cost is $20. P $120 $20 demand curve is P = 120-2Q MC-AC Q* (a) How many rounds of golf will Joe play per year (calculate the value of Q*)? Please explain. (b) If the golf course wishes to implement a two-part pricing model, what membership fee will maximize revenue for the golf course? Please show your calculations. (c) Would someone who just occasionally plays golf (perhaps 1 or 2 rounds once every 2 months) prefer two-part pricing as given above, or would they prefer to pay a price of $100 per round without any membership fee? Please explain. 8. (10 points) Assume that you live on the second floor of an apartment building and one day…arrow_forward
- (NON-RENEWABLE RESOURCES) The demand and supply functions for oil for the current generation (in million barrels) is: Demand: Qd = 250 – 5P Supply: Qs = 5P a. Assume the current generation does not consider the future at all. Draw a supply and demand graph showing the equilibrium price (P) and quantity (Q) consumed by this generation showing clearly the numbers for P and Q. b. Calculate the marginal net benefit (MNB) of consumption on this period and draw the graph. Explain your answer. [Hint: to calculate the MNB, convert the supply and demand curves as a function of quantity, P = f(Q)] c. Assume that the next generation will have the same demand. Supply for both generations is only 250 million barrels. Interest rate (r) is 5%. Calculate the efficient allocation of resources between the two generations. Thank you Bartleby for the help! I really need it!arrow_forward14. Lorenzo lives in New York City and runs a business that sells guitars. In an average year, he receives $851,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $476,000; he also pays wages and utility bills totaling $281,000. He owns his showroom; if he chooses to rent it out, he will receive $71,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Lorenzo does not operate this guitar business, he can work as an accountant and receive an annual salary of $34,000 with no additional monetary costs. No other costs are incurred in running this guitar business. a. Which costs are considered explicit? Which costs are considered implicit? b. What is Lorenzo's total cost? C. What is Lorenzo's total revenue? d. What is Lorenzo's accounting profit? e. What is Lorenzo's economic profit? f. Is Lorenzo earning a normal profit? If his goal is to maximize economic profit, should Lorenzo quit the…arrow_forwardA4 Please Note: I only need help with Part D. Everything else is correct. Please help!!arrow_forward
- [Economics] A maximization problem with partial derivative :)arrow_forward1arrow_forward14) Stan bought a car three years ago for $20,000. Recently he got a promotion and is deciding whether to keep his old car or to buy a new one. His dealer told him that the current market price of his old car is $15,000, The car maintenance costs are $1,000 now, and they are going to increase each year by at least $500. Stan compares his old car with a new one that, he calculates, would have an equivalent annual cost of $4,100. What is Stan's optimal decision if his current interest rate is 7%?arrow_forward
- 5. Complete the following table. Price () 8. 4 Output (units) TR () MR () 1 2 3 4 %3Darrow_forward6. All else being equal, how will the following events affect price and quantity in the Canadian real estate market? Use a diagram to explain each of your answers. (30%) (a) The government raises immigration targets, causing migrants to flood into the country. (b) Crime increases in Canada. (c) The government gets rid of many construction regulations, making building easier. (d) A recession hits the nation. (e) The Bank of Canada raises interest rates. (f) The Baby Boomers all die at around the same time.arrow_forward(Figure: Market Demand for Oranges) Consider the figure Market Demand for Oranges. The amount by which the total If the price of oranges is benefits of oranges to consumers exceed consumers' total expenditures on oranges is called B, this quantity is depicted by the area Price (per bushel) 0 producer surplus; BCD consumer surplus; OCDE consumer surplus; BCD net benefit; OBDE Market Demand Quantity (per period)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage LearningBrief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning