1. David Paul ran his Miami CenTrust Bank in the heady 1980s with an appetite for personal luxury subsidized with dubious junk bonds and shareholder money. Along with his extravagant home(monthly mortgage payment:$60.921).he built the CenTrust Tower on Miami’s skyline. The building was complete with gold-plated plumbing fixtures in the executive suites, a single staircase that cost $1 million, tons of green marble, a health club with mahogany lockers and a reflecting pool on the 1 1t floor sky lobby, the first elevator stop above the ground floor. Expensive paintings adorned his office walls. Was Mr. Paul acting in a manner pleasing to his shareholders? Explain his behavior and a potential solution to this behavior.(5 Points)normal
2.The generalized demand function for good X in linear form is given below:(5 Points) Q=35-14Px+0.35M+7.2Py
a. Is good X a normal or inferior good?/Explain.
b. What is the relationship between goods X and Y? Explain.
c. Does good X obey the law of demand? Explain
3.MovieLand has hired you to estimate the price elasticity of demand for a large barrel of popcorn at their theater. The last time they increased price from $4 to$6,quantity demanded declined from 120 to 100 barrels of popcorn. Management is considering raising the price of the product again. Calculated the price elasticity of demand. Would this be wise? Why or why not? How might revenue from popcorn sales be affected?(10
4. Suppose demand is given by Qd=9,000-14P+0.75M+30Pr and supply is given by Qs=80+5P-12P1+10F.(15 Points)
a. Solve for and graph the equilibrium price and quantity in this market if M= $45,000.Pr=$70,PI=$80 and F=40.
b. How would the market equilibrium be impacted if the government requires the market price to be $1,000? Calculate Qd and Qs at this price and indicate any shortage or surplus that might exist.
c. Is this price control a good idea for the government to impose? Why or Why not.
5. Suppose a production function is given by F(K,L)=K3L?,and the price of capital is $7 and the cost of labor is$15.(25 Points)
a. Find the amount of capital and labor that minimizes the cost of producing 2,500 units.(Use the LaGrange Method.)
b. Find the total cost of producing 2,500 units based on part a. c. What do you expect to happen to the amounts of capital and labor employed by the firm if the cost of capital increases to$10?(Note: No calculations are necessary-what do you expect the firm to do and why?)
6.Smith’s Frozen Pizza recently lowered its price from $10 to $8 per pizza. After this price change, Malone’s Frozen Pizza noticed a decrease in weekly sales from 120 to 80 frozen pizzas. Calculate the appropriate elasticity measure for Smith’s and Malone’s Frozen Pizza and classify the relationship between the two companies. Does your answer correspond with how you think the two companies “should” be related? Why or why Q not?(5 Points)
7.The state of Alabama constructed a sophisticated waste disposal facility located in the small community of Emelle. Waste produced in the state was taxed at a low rate while out-of-state waste was taxed at a much higher rate. A Montgomery Bureau reporter noted, “the [Alabama]legislature increased the tax on imported waste from$22 to $112 per ton in 1990.In 1991,the tax produced$38.7 million for the Alabama General Fundup from $12.4 million collected in 1990 before the increase. However, in 1992 the amount collected fell to only $20.3 million and by 1993,the amount collected was only $18 million. Explain.(10 Points),
8.You have been hired as a consultant for XYZ Production Company who produces exercise equipment. XYZ has provided you with the following cost and revenue information.(10 Points) Total Cost=10,000+400Q+.0025Q2 Total Revenue=700Q Current production totals 67,000.Your task is to find the profit maximizing level of output for this firm and make a recommendation to increase, decrease or leave production unchanged. Explain why you are making your specific recommendation to the company?
9.The Ryder Cup pits the top European golfers against America’s best golfers. In 1995,the Ryder Cup was held in Rochester, New York. Thousands of spectators attended the event and many wanted to play golf while in the city. Several otherwise private courses in the vicinity became public during the time that the Cup was being played. Green’s fees more than doubled during the week. Use supply and demand curves to explain the increase in price.(10 Points)
10.Cell phone companies opposed the 2003 Federal Communications Commission(FCC) ruling that made phone numbers transferable from cell phone firm to cell phone firm. Would the 2003 ruling change the elasticity of demand for a cell phone? How?(5 Points)
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