Economics Answers

You and your partner are highly efficient people. You can earn $18 per hour in the workplace; your partner can earn $15 per hour. (a) What is the opportunity cost of one hour of leisure for you? (b) What is the opportunity cost of one hour of leisure for your partner? (c) Now consider what a PPF would look like: You can produce/consume two things, leisure and income. Since income buys things you can think of the PPF as having these two productsleisure and consumption goods/services. So, with leisure on the horizontal axis and income in dollars is on the vertical axis, plot your PPF. You can assume that you have 14 hours per day to allocate to either leisure or income. [Hint: the leisure axis will have an intercept of 14 hours. The income intercept will have a dollar value corresponding to where all hours are devoted to work.] (d) Draw the PPF for your partner.

Explain the shape of the aggregate supply curve in the short run and also indicate the impact of input and output price adjustment in determining the slope of the short run aggregate supply curve.

The marginal cost of producing the Kindle is estimated at $126 per unit. Apply the MR = MC rule to find the output and price that maximize Kindle profits.

Considering that each Kindle sold generates $100 in e-book profits, determine Amazon’s optimal quantity and price with respect to the total profit generated by Kindle and e-book sales. What is the implication for Amazon’s pricing strategy?

Flame Holdings is a company with a called up and paid up capital of 100,000 ordinary

shares of £1 each and 20,000 10% redeemable preference shares of £1 each.

The gross profit was £200,000 and trading expenses were £50,000. Flame Holdings

paid the required preference share dividend and an ordinary dividend of £ 0.42 per

share. The tax charge for the year was estimated at £40,000.

Required

Calculate basic EPS for the year

From the expenditure side, GDP=? (តាមទស្សនចំណាយ GDP=?)

Suppose the price elasticity of demand for a basket of fruits is -5.0. You are currently charging $42 per basket. If you want to increase the quantity of fruit baskets sold by 20 percent, you should charge a price equal to $_____.  Use midpoint formula.

Answer the following problems

e. Consider a given bond that has five years maturity, Br.1000 face value and a 12 percent coupon rate. Suppose a broker’s commission of Br.50 is imposed by brokers to buy or sell the bond. Assume further, that the discount rate (minimum required rate of return) is 10 percent and the bond pays interest annually. What is the price of the bond?

f. Project X requires an immediate investment of $150,000 and will generate net cash inflows of $60,000 for the next three years. The project’s discount rate is 7%. If net present value is used to appraise the project, should Project X be undertaken?

The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period

Month Madison Cookies Sophie Electric

1. -0.04 0.07
2. 0.06 -0.02
3. -0.07 -0.01
4. 0.02 0.15
5. -0.02 -0.06
6. 0.05 0.02

Instruction

a. Average monthly rate of return for each stock

b. Standard deviation of returns for each stock

c. Covariance between the rates of return

d. The correlation coefficient between the rates of return

e. Would these two stocks be good choices for diversification? Why or why not?

Consider two bonds, HI and LI. The HI bond has a 10% coupon rate and the LI bond has a 5% coupon rate. Both bonds pay interest annually and are priced to yield 10%. Suppose the following interest scenarios are possible at the point in time when both bonds have five years remaining to maturity:

possible interest rate 5%,10,15

possibility of interest rate 10%, 50,40

Required:

a. Calculate the expected value for each bond.

b. Calculate the standard deviation of possible values for each bond.

c. Which bond is riskier? Why?