A consumer's utility only depends on the consumption of goods A and B according to the following Cobb - Douglas utility function: U(A, B) = A3/5 B 2/5. The price of goods A and B are $10 and $10, respectively. The consumer has a budget of $1500 that he can use to consume the two goods. a) Calculate the optimal bundle and maximized utility for the consumer. b) A new tax of $5 is imposed on the price of good B. Compute the new optimal bundle of good A and B for the same consumer. What is the utility loss due to the tax? c) Show that the consumer would prefer a lump sum income tax that raises the same revenue of $200 as the tax on good B.

How many statements below regarding margin of safety are correct? 1. It is the amount by which sales can be reduced without incurring a loss. 2. It is the difference between budgeted sales and breakeven sales. 3. It can be expressed in terms of unit, pesos or percentage of sales. 4. Its presence indicates that the company expects profit. 5. The product of margin of safety units and unit contribution margin is the projected profit for the period. 6. The higher the margin of safety, the lower is the risk of incurring operating loss. 3 4

6. The multiplier effect Consider a hypothetical economy where there are no taxes and no foreign trade, and households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The marginal propensity to consume (MPC) for this economy is 0.75 ; the marginal propensity to save (MPS) for this economy is 0.25 ; and the multiplier for this economy is 4 Suppose investment spending in this economy increases by $100 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on. Fill in the following table to show the impact of the change in investment spending on the first two rounds of consumption spending and, eventually, on total output and income. Hint: Be sure to enter a negative sign in front of the number if there is a decrease in consumption. Change in Investment Spending = $100 billion First Change in Consumption = billion Second Change in Consumption = 24 billion Total…

Compare your answers for the Cost of Goods Sold for the three valuation methods: weighted mean, FIFO, and LIFO. Which method will produce the greatest profit for Sports Haven?

For a certain product, the linear demand curve is described by the equation, Quantity = 15,449 - 405 * Price. Variable cost to manufacture this product is $8 per unit. Calculate optimal price for this product. Rounding: penny.

“You should always choose the supplier who offers the lowest price per unit.” Do you agree? Explain.

Knight Shades Inc. is considering adding new line of sunglasses to their designer series. The glasses will sell for $1,100 per pair and have a variable cost of $400 per unit. The company has spent $101,000 for a marketing study that estimates the company will sell 74,000 sunglasses per year for seven years. The fixed costs each year to produce the sunglasses will be $5,040,000. The company has also spent $706,000 on research and development for the new glasses. The new plant and equipment will cost $12,000,000 at start-up and will be depreciated on a straight-line basis to zero over the seven years. At the end of the seven years the plant and equipment will be worthless. The new sunglasses will also require an increase in net working capital of $664,000 that will be returned at the end of the project. The tax rate is 40 percent, and the cost of capital is 9 percent. The marketing study also estimates that introducing the new sunglasses will reduce sales of the company's high-priced…

What is the discount rate for year 2? ____________ What is the NPV of all costs for year 1? ____________________ What is the NPV of benefits for year 2? _________________ What is the NPV of benefits for year 5? _________________ What is the NPV of all costs in year 5? ___________________ What is the TOTAL NPV of benefits? __________________ What is the TOTAL NPV of all costs? ____________________ What is the OVERALL NPV? _________________________ What is the ROI? ____________________________________ When does the project break-even? _____________________ What is the break-even fraction? _______________________

If selling price is $2.08 and cost is $1.60, what is the price/cost ratio?

Q7: An individual lives for only two periods and has preferences given by the follow- ing intertemporal utility function: U = Ing₁ +aln(1 -h₁) + [Inc₂+aln(1 - h₂)] (1) where, c₁, c₂ denotes consumption in period 1 and period 2 respectively h₁, h₂ denote the labour supply in period 1 and 2 respectively. Therefore 1-h is the amount of leisure time in period 1. The term 3 is the discount factor. The problem of the individual at period 1 is to choose consumption in both periods and labour supply in both periods subject to the following budget constraints: +8= wh and c₂= w₂h₂ + (1+r)s where s denote the saving, w denotes the wates and r denotes the real interest rate. (a) Provide an economic interpretation of the two budget constraints written above. (b) Combine the two budget constraints written above and prove the economic interpretation of of life time budget constraint. (c) Set the Lagrangean function and find the first order conditions with respect to C₁ C₂, hi and h₂. (d) Find the…