Managerial Economics (MindTap Course List)
4th Edition
ISBN: 9781305259331
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 5, Problem 5.1IP
To determine
The break-even
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2. What is the payoff from a long futures position where you are obligated to buy at the contract
price? What is the payoff from a short futures position where you are obligated to sell at the
contract price?? Draw the payoff diagram for each position.
Payoff from Futures
Contract F=$50.85
S1
Long
$100
$95
$90
$85
$80
$75
$70
$65
$60
$55
$50.85
$50
$45
$40
$35
$30
$25
Short
3. Consider a call on the same underlier (Cisco).
The strike is $50.85, which is the forward price.
The owner of the call has the choice or option to buy at the strike.
They get to see the market price S1 before they decide.
We assume they are rational.
What is the payoff from owning (also known as being long) the call?
What is the payoff from selling (also known as being short) the call?
Payoff from Call with
Strike of k=$50.85
S1
Long
$100
$95
$90
$85
$80
$75
$70
$65
$60
$55
$50.85
$50
$45
$40
$35
$30
$25
Short
4. Consider a put on the same underlier (Cisco).
The strike is $50.85, which is the forward price.
The owner of the call has the choice or option to buy at the strike.
They get to see the market price S1 before they decide.
We assume they are rational.
What is the payoff from owning (also known as being long) the put?
What is the payoff from selling (also known as being short) the put?
Payoff from Put with
Strike of k=$50.85
S1
Long
$100
$95
$90
$85
$80
$75
$70
$65
$60
$55
$50.85
$50
$45
$40
$35
$30
$25
Short
Chapter 5 Solutions
Managerial Economics (MindTap Course List)
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Similar questions
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- Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…arrow_forwardWhich of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.arrow_forwardConsider the figure at the right. The profit of the single-price monopolist OA. is shown by area D+H+I+F+A. B. is shown by area A+I+F. OC. is shown by area D + H. ○ D. is zero. ○ E. cannot be calculated or shown with just the information given in the graph. (C) Price ($) B C D H FIG шо E MC ATC A MR D = AR Quantityarrow_forward
- Consider the figure. A perfectly price-discriminating monopolist will produce ○ A. 162 units and charge a price equal to $69. ○ B. 356 units and charge a price equal to $52 for the last unit sold only. OC. 162 units and charge a price equal to $52. OD. 356 units and charge a price equal to the perfectly competitive price. Dollars per Unit $69 $52 MR 162 356 Output MC Darrow_forwardThe figure at right shows the demand line, marginal revenue line, and cost curves for a single-price monopolist. Now suppose the monopolist is able to charge a different price on each different unit sold. The profit-maximizing quantity for the monopolist is (Round your response to the nearest whole number.) The price charged for the last unit sold by this monopolist is $ (Round your response to the nearest dollar.) Price ($) 250 225- 200- The monopolist's profit is $ the nearest dollar.) (Round your response to MC 175- 150 ATC 125- 100- 75- 50- 25- 0- °- 0 20 40 60 MR 80 100 120 140 160 180 200 Quantityarrow_forwardThe diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by what? A. There is no deadweight loss generated. B. Area H+I+J+K OC. Area H+I D. Area D + E ◇ E. It is not possible to determine with the information provided. (...) 0 Price 0 m H B GI A MR MC D Outparrow_forward
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