ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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How might companies in the steel and petrol industry react to an increase in the price of bauxite?
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- The price of crude oil increased to its highest level due to conditions which impacted supply. Historically, crude oil has traded at between 70 and 150 USD per barrel. But the price increased to over 200 USD in March 2022. Growing demand in Canada for crude to be turned into refined petroleum, coupled with a sharp fall in production in Saudi Arabia have both been factors in the price increase. Bauxite production in Saudi Arabia for 2017- 18 fell 65% year-on-year due to an agreement with OPEC. The Energy Information Administration predicts that global consumption of crude oil is likely to be greater than production by 20 million barrels this year. In the US, companies in the steel and alumina industry have put pressure on the US government to relax import controls, warning that otherwise they might run out of petrol. Commentators predict that most steel and alumina producers will be unaffected because crude is such a small part of their spending. a. Explain, using supply and…arrow_forwardThe total/aggregate market demand for rubber erasers can be segmented into two components. The first component is the demand for rubber erasers by art students. This demand is given by Qa=10,000-250P. The second component is the demand for rubber erasers by all other purchasers. This demand is given by Qo=15000-500P. a) Draw the demand curve for art students, the demand curve for other purchasers and the aggregate demand curve b) Derive the algebraic expression for the aggregate demand curve. c) If the equilibrium price is $20, determine the consumer surplus for art students.arrow_forwardThe company is considering lowering the price of Model A to $27 in an effort to increase the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products’ chief economist estimates the arc price elasticity of demand to be –2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs per unit are not expected to change over the anticipated changes in volume. a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? Explain b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets. c. Based on this analysis, should the firm lower the price of Model A? Explainarrow_forward
- Given the existing problems with its airbag system, Honda Motors has experienced a decline in sales of its Accord automobilearrow_forwardfollowing to advice management. In the first semester of the 2019/2020 academic year, fees were pegged at ¢2500 and enrolment was 3150. In the second semester the fees went up to ¢2700 and the enrolment dropped to 2950. You further observed that in the 2019/2020 academic year, Central University increased their fees from ¢2600 to ¢2900 and the enrolment at VVU went up from 2150 to 3005. Calculate the arc price elasticity of demand, interpret your results and advice management of UEW on pricing. What explains this elasticity coefficient obtained in (i)? Calculate the arc cross-price elasticity of demand, interpret your results and determine the relationship between Central University and UEW.arrow_forwardManning Inc. is the leading manufacturer of garage doors. Demand for residential garage doors depends, of course, on the rate at which new houses are being built, which in turn depends on changes in income per capita. During the past year, Manning sold 10 000 garage doors at an average price of R1 500 per door. In the coming year, disposable income per capita is expected to increase from R32 000 to R34 000. Without any price change, Manning expects current-year sales to rise to 12 000 units. 1. Calculate the arc income elasticity of demand. 2. The company economist estimates that in conjunction with the change in income, if the price of doors is increased by R100, they could sell 11 500 doors. What is the arc price elasticity and what would be the company’s revenue? 3. Should they raise the price even more?arrow_forward
- A particular metal is traded in a highly competitive world market at a world price of $11.2 per ounce. Unlimited quantities are available for import into Canada at this price. The supply of this metal from domestic Canadian producers can be represented by Qs = 322 + 52P and the demand for the metal in Canada is Qd = 2589 - 74P, where Qs and Qd are in units of million ounces and P is the price per ounce. The Canadian government plans to impose an import quota of 310 million ounces per year. What is the net domestic loss to the Canadian economy as a result of the import quota? Answer: $ __________millionarrow_forwardJust a year after you launched the expansion of DWJ, inflation has raised your marginal cost by 7% from $198.33 to $212.21. Your elasticity varies for each of the three regions in which you sell your DWJ brand. In the southwestern region, your elasticity is -2.76. In your upper-western region the elasticity is -3.50. In your New England region the elasticity is -5.76.Use %ΔQd/%ΔP = e to estimate the percentage decrease in quantity demanded if you were to raise prices in all three regions by 7%. (Do not include the negative sign when recording your answer.)a. %ΔQd Southwestern b. %ΔQd Upper-western c. %ΔQd New Englandarrow_forwardConsider a piece of equipment for which the expenditure at the beginning of period 1 is $40,000. Given that this is a cost, consider it as a negative in a net revenue framework. The net revenue at the end of year 1 is $15,000. The net revenue at the end of year 2 is $20,000. The net revenue at the end of year 3 is $21,000. The net revenue at the end of year 4 is $25,000. This includes revenue from operations and sale of the used equipment. The interest rate is 6%. What is the net present value of this net revenue stream?arrow_forward
- A company has 350 employees who work 120 hours a month each. Each worker earns $21 per hour. There is a profitable project the company would like to start, but it would require an additional 21,000 working hours within three months to be completed, and all the employees are fully loaded with other projects. The company does not want to hire new staff; they would like the project to be completed by the current workforce instead.Given that the wage elasticity of labor supply is 0.8, calculate the hourly wage the company should offer its employees to encourage them to work on the new project. Use the midpoint method and round to two decimal places throughout your calculations.arrow_forwardThe price of bauxite increased to its highest level due to conditions which impacted supply. Historically, bauxite has traded at between 1500 and 1600 USD per tonne. But the price increased to over 1900 USD in November 2020. Growing demand in Canada for bauxite to be turned into aluminium, coupled with a sharp fall in Jamaican production have both been factors in the price increase. Bauxite production in Jamaica for 2017-18 fell 65% year-on-year due to flood conditions causing damages as well as increased competition. The London Metal Exchange predicts that global consumption of bauxite is likely to be greater than production by 20 million tonnes next year. In the US, companies in the steel and petrol industry have put pressure on the US government to relax import controls, warning that otherwise they might run out of bauxite. Commentators predict that most steel and petrol producers will be unaffected because bauxite is such a small part of their spending. d.How might companies in the…arrow_forwardThe government of canada recently signed a new preferential trade agreement and has agreed to pay subsidies to poultry farmers to compensate for increased competition they may face from imports. You are employed as an analyst. In order to determine the dollar value of compensation you are required to estimate how the Canadian price of poultry and the quantity of imported poultry will change as a result of this new trade agreement. Canada is a small importing country in the world market for poultry. Provided is the following information about the Canadian poultry market: 1.The world price of poultry is $5 2.The Canadian poultry market is currently (before new trade agreement) protected by a tariff rate quota (TRQ) of the following format: -an in-quota tariff is $1/unit -the import quota volume is 100 units -the over-quota tariff is $10/unit 3.An excess demand (ED) for imports function for poultry has been estimated as P = 28 - 0.14Q a)Draw the diagram for imports in this market, and…arrow_forward
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