Economics Answers

Anna is thinking about making an improvement to her home. This modification will cost $10,000, but it will also increase the value of the home by $10,000 when Anna plans to sell it in 10 years. The market interest rate is 10%. 

What is the minimum amount at which Anna must personally value the improvement to be willing to go through with it? 

a.) Suppose the demand for Pepsi-Cola is Qn = 54 - 2 Pn + Pc. The demand for Coca-Cola is Qc = 54 - 2 Pc + 1Pp. Each firm faces a constant marginal cost of zero. Determine the Bertrand equilibrium prices, output and profit for each firm.[10 marks] b.) What happens to the Bertrand equilibrium prices and profits if increased differentiation causes the demand for Pepsi-Cola to become Qn = 104 - 2 Pn + 1Pc while the demand for Coca-Cola remains unchanged ? c.) Suppose the demand for Pepsi-Cola is Qn = 50 - 2 Pp + 1 Pc. The firm faces a constant marginal cost of "m", and "pc" denotes the price of Coca-Cola. Assuming Bertrand behavior, derive Pepsi-Cola's best-response function and explain how the firm changes price in response to changes in its own marginal cost and changes in Coca-Cola's price. [5 marks]

Suppose you have two options when investing money in the stock market: stock A and stock B. The returns on both are dependent on the state of the economy, which fluctuates with the business cycle. During periods of strong economic growth, the rates of return for stock A and stock B are 26.00 and 9.00, respectively. Periods of weak growth during recessions cause the rates of return for stock A and stock B to fall to 3.00 and 1.00, respectively. Additionally, assume that an economic boom is twice as likely as an economic downturn.

Calculate the expected return for stock A:     (Round to two decimals, if necessary.)

Calculate the expected return for stock B:     (Round to two decimals, if necessary.)

Assume the expected return rate (answer from Part 1) is fixed and will not change for the next week. You wake up tomorrow and find out that open market operations by the the Federal Reserve chairperson push the (fictional) weekly Treasury bill fixed rate of return to 17.50%. Considering your investment options, how do you react to this news?

Choose one:

A. Continue investing in the asset portfolio because the Treasury bill return rate is lower.

B. Shift investment to Treasury bills because the asset portfolio return rate is higher.

C. Continue investing in the asset portfolio because the Treasury bill return rate is higher.

D. Shift investment to Treasury bills because the asset portfolio return rate is lower.

The rate of return for a market portfolio of risky assets is 7.00%, and its corresponding beta is 2.50. In addition, a risk-free option has a return rate of 2.00%. According to the Capital Asset Pricing Model (CAPM), what expected rate of return (in percentage terms) should any risky asset offer?     (Round to two decimals, if necessary.)

Consider an alternative investment choice: a mutual fund whose beta is 0.6 and expected return is 2.50 percentage points higher than the market line. What is the expected return of this mutual fund? 

Suppose you purchase asset A intending to keep it for 10 years (receiving 10 total dividend payments), at which time you will sell it for the same price you purchased it for. What is the present value of the returns from that purchase?

Suppose you receive asset B for free and plan to keep it for 10 years and then sell it, at which point its value will have risen to $1,000.00. What is the present value of the return from that asset? 

a.) Assume the demand for wine in a small isolated town is P = 200 - Q. Two fims, A and B are the sole producers of the product, and they display Cournot duopolists tendencies. Both firms have a same total cost function of TCi = 40 + Qi. Find the profit maximizing output level for each firm, market price and profit for each of the firm. [10marks] b.) The Chief Executive Officer of the town intents to subsidize firm A to raise its output to that of a Stackelberg leader, how large should the subsidy be in terms of output? [7 marks] c.) What happens in a duopoly if both firms try to act as the Stackelberg leader? [4 marks] d.) Briefly explain why the intersection of the best-response functions is the Cournot equilibrium [4 marks]

Examples of the difference between cash flow statements prepared using the

direct method versus the indirect method;

Using examples explaining the difference between cash flow statements prepared using the direct method versus the indirect method;