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Stella is an 8 year old that gets a monthly allowance of $10 from her parents. There are only two things that Stella likes to spend her allowance on: chocolate bars and packages of stickers. Assume that initially chocolate bars cost $1 each and packages of stickers cost $2 each.
Imagine that Stella has spent her allowance and made the optimal choice of consuming 2 chocolate bars and 4 packages of stickers. Suppose that we are given the information that Stella’s marginal utility from consuming more chocolate at this point is equal to 5. What is her marginal utility from a marginal increase in stickers? If Stella reduced the number of chocolate bars she consumed, would her marginal utility from chocolate bars increase or decrease? How would her total utility change?
Imagine that Stella has spent her allowance and made the optimal choice of consuming 2 chocolate bars and 4 packages of stickers. Suppose that we are given the information that Stella’s marginal utility from consuming more chocolate at this point is equal to 5. What is her marginal utility from a marginal increase in stickers? If Stella reduced the number of chocolate bars she consumed, would her marginal utility from chocolate bars increase or decrease? How would her total utility change?
In order to minimize costs, a firm will employ resources such that the marginal products for each input are equalized. True, False or Uncertain
A number of publicly traded firms pay no dividends to their shareholders yet investors
are willing to buy shares in these firms. How is this possible? Does this violate our
basic principle of stock valuation? Explain your answer.
are willing to buy shares in these firms. How is this possible? Does this violate our
basic principle of stock valuation? Explain your answer.
By using suitable examples, discuss the differences between periodic rate, nominal
rate and effective rate.
rate and effective rate.
What is meant by unsystematic risk? How is it different from the systematic risk?
Describe the sources of unsystematic risk. What will the required rate of return be
when the level of systematic is high?
Describe the sources of unsystematic risk. What will the required rate of return be
when the level of systematic is high?
When do companies incur the agency costs? Support your answer by giving an
example.
example.
Consider a firm in the short-run. If total product is at its maximum, then marginal product must be at its maximum. True False or Uncertain
Respond to the following question (one well composed paragraph for each question):
Suppose the Fed sells $5 million worth of bonds to Econobank.
What happens to the reserves of the bank?
What happens to the money supply in the economy as a whole if the reserve requirement is 10%, all payments are made by check, and there is no net drain into currency?
How would your answer in part b be affected if you knew that some people involved in the money creation process kept some of their funds as cash?
Suppose the Fed sells $5 million worth of bonds to Econobank.
What happens to the reserves of the bank?
What happens to the money supply in the economy as a whole if the reserve requirement is 10%, all payments are made by check, and there is no net drain into currency?
How would your answer in part b be affected if you knew that some people involved in the money creation process kept some of their funds as cash?
A profit-maximizing firm with variable labour and capital will always produce at the minimum point of the long run average cost curve. True false or uncertain
One of the key assumptions about preferences is that consumption bundles with more of both goods are preferred to those with less of both. Assuming people are rational, if two indifference curves cross, they must not belong to the same person. True, False or Uncertain
