The theoretical justification for using carbon trading to address negative environmental externalities is based on the Coase theorem.
a) This theorem states that in the presence of well-defined property rights and low transaction costs, bargaining between affected parties can result in an efficient allocation of resources that will maximize the benefits of those affected parties. This is the case with carbon emissions, as greenhouse gases contribute to climate change and other negative environmental externalities. Carbon trading schemes allow firms to purchase emissions permits to offset their own emissions or sell them to other firms that need them. This allows for a market-based approach to reducing carbon emissions, which can result in a more efficient allocation of resources.
b. The success of emissions trading as an instrument to address negative environmental externalities depends on a number of factors. One of the key factors is the stringency of the emissions cap. If the cap is set too high, there will be little incentive for firms to reduce their emissions, which will undermine the effectiveness of the scheme. Additionally, the success of emissions trading depends on the transparency and accuracy of emissions reporting, as well as the integrity of the regulatory framework that oversees the scheme. Finally, the success of emissions trading also depends on the availability of alternative technologies and practices that can help firms reduce their emissions at a reasonable cost. If these conditions are met, emissions trading can be an effective instrument to address negative environmental externalities.
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An advance in technology which increases labor productivity will shift the: a. labor demand curve to the left.
b. MFC curve to the left c.MP curve downward.
d. labor demand curve to the right. e. product demand to the right.
An advance in technology that increases labor productivity will shift the: d. labor demand curve to the right.
When technology improves and labor productivity increases, firms can produce more output with the same amount of labor. This makes labor more valuable to the firms, leading to an increase in the demand for labor. As a result, the labor demand curve shifts to the right, indicating that firms are willing to hire more workers at each wage level.
The other options are not directly affected by an advance in technology increasing labor productivity. The MFC (Marginal Factor Cost) curve represents the additional cost incurred by firms to hire an additional unit of labor, and it is not directly influenced by technological advancements. The MP (Marginal Product) curve represents the additional output produced by each additional unit of labor, and it may shift downward if diminishing marginal returns occur, but it is not directly affected by technological advancements. Product demand is influenced by factors other than labor productivity, such as consumer preferences and overall economic conditions.
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Consider a firm running a business in the pure competition setting. This firm's cost function is as follows c(y) c(y) = y² - 4y² + question are consistent with the notations used in class. What is the short-run supply function for this cost structure?
The short-run supply function for the given cost structure is Qs(P) = -P/6
The firm will be willing to supply goods at quantities (output levels) determined by this function, based on the market price (P).
Given the cost function c(y) = y² - 4y², where y represents the level of output, we can find the firm's marginal cost (MC) function by taking the derivative of the cost function with respect to y:
MC(y) = d(c(y))/dy = d(y² - 4y²)/dy = (2y - 8y) = -6y
Equating the marginal cost to the market price (P).
P = MC(y) = -6y
Solving the equation for y to find the quantity of output at which the firm is willing to supply goods in the short run:
P = -6y
y = -P/6
The short-run supply function for this cost structure is:
Qs(P) = -P/6
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How has the threat to aviation security changed over the past 60
years and why is that important to a discussion about airport
security?
The threat to aviation security has changed significantly over the past 60 years, primarily due to changes in technology and the evolving nature of terrorist threats. In the 1960s and 1970s, hijackings were the most common threat to aviation security.
The introduction of metal detectors and baggage screening procedures in the 1970s helped to mitigate this threat. However, the threat evolved in the 1980s and 1990s to include bombings and the use of explosives. As a result, more advanced screening technologies and procedures, such as X-ray machines and explosive trace detection, were implemented.In the 21st century, the threat has shifted again to focus on the use of non-metallic explosives and other sophisticated weapons, as well as the threat of cyber attacks on aviation systems.
This has led to increased use of advanced screening technologies and security measures, such as body scanners and biometric identification systems. It is important to discuss these changes in the threat to aviation security because they highlight the need for continued vigilance and adaptation in airport security procedures. It also underscores the importance of investing in new technologies and training programs to ensure that airport security measures keep pace with the evolving nature of threats.
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The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is Multiple Choice The revenue recognition principle Accrual basis accounting Cash basis accounting Nort
The Accrual Basis of Accounting is used to record transactions in the financial statements of an entity. Revenues are reported in the income statement in the period they are earned, regardless of whether or not cash has been received from customers.
The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is Accrual basis accounting and the revenue recognition principle. The matching principle then requires that expenses be recorded in the period in which they are incurred, regardless of when payment is made. The Revenue Recognition Principle, on the other hand, requires that revenues are recognized when they are earned and not when cash is received. This principle is the foundation of accrual accounting and states that revenues are recognized when earned, regardless of whether cash has been received or not. In conclusion, both the Accrual basis accounting and the revenue recognition principle are used to prepare financial statements by recognizing revenues when they are earned and matching expenses to those revenues.
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Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system?
a. No entry is required for cost of goods sold and inventory. b. Debit Cost of Goods Sold $700; credit Inventory $700.
c. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. d. Debit Inventory $700; credit Cost of Goods Sold $700.
When Good, Inc. sells inventory using a perpetual inventory system, the correct recordation would be: c. Debit Cost of Goods Sold $1,200; credit Inventory $1,200.
In a perpetual inventory system, each sale of inventory is recorded by debiting the Cost of Goods Sold (COGS) account for the cost of the inventory sold and crediting the Inventory account for the same amount. This reflects the reduction in inventory and the recognition of the cost associated with the goods that have been sold.
In this case, the inventory was originally purchased for $700, but it was sold for $1,200. Thus, the Cost of Goods Sold account is debited for the selling price of $1,200, and the Inventory account is credited for the same amount.
Option c correctly represents this entry, reflecting the cost of goods sold and the reduction in inventory as a result of the sale.
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Last year, Meether Company produced 18,100 units and sold 17,100 units. The company had no beginning inventory. Meether incurred the following costs:
Direct materials per unit $40
Direct labor per unit $17
Variable overhead per unit $18
Total fixed manufacturing overhead $162,900
Total selling and administrative $5,000
Sales Price per unit $100
The cost per unit under variable costing is _____.
Question content area bottom
Part 1
A. $25
B. $84
C. $16
D. $75
The cost per unit under variable costing is $75 (Option D).
To calculate the cost per unit under variable costing, we need to consider the direct materials, direct labor, and variable overhead costs. The fixed manufacturing overhead and selling and administrative costs are not included in the variable costing calculation.
Cost per unit under variable costing = Direct materials per unit + Direct labor per unit + Variable overhead per unit
Cost per unit under variable costing = $40 + $17 + $18
Cost per unit under variable costing = $75
Therefore, the cost per unit under variable costing is $75 (Option D).
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Jason sold land with a basis of $35,000 in a tax- deferred
transaction in the current year and realized a gain of $50,000. The
land received had a fair market value of $65,000 and a basis of
$40,000. The gain deferred was $10,000. What is Jason’s basis in
the land received?
a. $35,000
b. $40,000
c. $50,000
d. $55,000
Jason's basis in the land received is $30,000.The correct answer is not listed among the options provided.
In this case, Jason sold land with a basis of $35,000 and realized a gain of $50,000. The land received in the exchange had a fair market value of $65,000 and a basis of $40,000. The gain deferred was $10,000.
To calculate Jason's basis in the land received, we start with the basis of the land received, which is $40,000, and then adjust it by the deferred gain of $10,000.
Basis in the land received = Basis of land received - Deferred gain
= $40,000 - $10,000
= $30,000
Therefore, Jason's basis in the land received is $30,000.The correct answer is not listed among the options provided
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QUESTION 3 Firms in perfect competition will maximize profit by producing where: MR = MC. MC < MR. MP = MR. TFC = TVC. QUESTION 4 A firm in a perfectly competitive industry will produce more output as
The correct answer is "MR = MC" that is firms in perfect competition will maximize profit by producing where marginal revenue equals to marginal cost.
The objective of any profit-seeking firm is to maximize profit. This involves producing and selling products that lead to higher profits. It can be achieved by producing goods that minimize cost and maximize revenues.To obtain maximum profits, a firm must consider two essential things: Marginal Cost (MC) and Marginal Revenue (MR). Marginal Cost is the cost of producing an additional unit of product.
Marginal Revenue is the amount of revenue obtained by producing an additional unit of product. In perfect competition, a firm can maximize profit by producing where MR = MC. If the Marginal Revenue (MR) is greater than Marginal Cost (MC), the firm should produce more output to get maximum profit. But, if the Marginal Cost (MC) is higher than the Marginal Revenue (MR), the firm should reduce output production in order to maximize profit.
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Bob makes his first $500 deposit into an IRA earning 6.8% compounded annually on his 24th birthday and his last $500 deposit on his 36th birthday (13 equal deposits in all). With no additional deposits, the money in the IRA continues to earn 6.8% interest compounded annually until Bob retires on his 65th birthday. How much is in the IRA when Bob retires?
The amount in the IRA when Bob retires on his 65th birthday will be $47,557.26 (approximately). The calculations assume that there are no withdrawals from the IRA until Bob retires.
The future value of 13 equal deposits of $500 with the interest rate of 6.8% compounded annually can be calculated using the formula for annuities future value:
Future value = A * ((1 + r)n - 1) / r
Where A = annuity payment, r = interest rate, n = number of periods
Here, A = $500, r = 6.8%, and n = 13
Future value of annuity = $500 * ((1 + 0.068)13 - 1) / 0.068
= $7,800.81 (rounded to the nearest cent)
Now, to calculate the total amount in the IRA when Bob retires, we need to find the future value of the $7,800.81 with an additional period of 29 years, i.e. from his 36th to 65th birthday.
Future value = Present value * (1 + r)n
Here, present value = $7,800.81, r = 6.8%, and n = 29
Future value of the IRA when Bob retires = $7,800.81 * (1 + 0.068)29
= $47,557.26 (rounded to the nearest cent)
Therefore, the amount in the IRA when Bob retires on his 65th birthday will be $47,557.26 (approximately). The calculations assume that there are no withdrawals from the IRA until Bob retires.
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At a minimum, all Wi-Fi or wireless connections at a VITA/TCE tax preparation site must be password protected. a. True b. False
The given statement "At a minimum, all Wi-Fi or wireless connections at a VITA/TCE tax preparation site must be password protected" is true because the Internal Revenue Service (IRS) has established security standards for Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites to protect the sensitive information of taxpayers.
The security standards for VITA and TCE sites require that all Wi-Fi or wireless connections must be password protected to prevent unauthorized access. Furthermore, all computers and electronic devices used to prepare or transmit tax returns must have up-to-date antivirus and anti-spyware software installed.All VITA/TCE volunteers must follow the IRS Publication 3189 security guidelines to protect the confidentiality of taxpayer information.
It is also mandatory for all VITA/TCE volunteers to complete annual security awareness training before working at a VITA/TCE site. This ensures that the volunteers understand the importance of data privacy and security.Therefore, all wireless connections at VITA/TCE tax preparation sites must be password protected, making the statement true.
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Discuss the differences between vision and mission statements. For an organization of your choice, present an example of good vision and mission statements.
Vision statements outline the future aspirations and goals of an organization, describing what the organization aims to achieve in the long term. Mission statements, on the other hand, define the purpose and core activities of an organization, outlining what it does, who it serves, and how it operates to fulfill its vision.
A good example of a vision statement is from Go-ogle: "To organize the world's information and make it universally accessible and useful." This statement reflects Goo-gle's long-term goal of organizing information and making it easily accessible to everyone.
An example of a mission statement is from Ni-ke: "To bring inspiration and innovation to every athlete* in the world (*if you have a body, you are an athlete)." Nike's mission statement highlights their commitment to inspire athletes and provide innovative products for individuals with a passion for sports and physical activity.
These examples illustrate how vision and mission statements play distinct roles in shaping an organization's direction and purpose. Vision statements focus on the desired future state, while mission statements define the fundamental purpose and scope of an organization's activities.
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Jason has the opportunity to purchase a new piece of equipment for his factory. He wants to calculate the Weighted Average Cost of Capital (WACC) for his current operations. Long terms borrowings make up 40% of the business's capital. The applicable interest rate paid for this is 7% per annum. The current tax rate that the business pays is 30%. The business is listed on the ASX and information from Bloomberg has calculated that the Beta for it (and other similar listed businesses) is 0.8. Bloomberg also states that the Market Risk Premium is 2% and the Government Bond Rate (risk free rate) is 1%. a. Calculate the cost of Debt Capital for the business (allow for the tax deductibility of the debt). (1 mark) b. Assuming that his business has only ordinary shares, calculate the cost of Equity Capital for the business. (1 mark) c. With your answers in a. and b. calculate the current WACC for Jason's business that should be used when onsidering new purchases of equipment. (2 marks) d. If the returns generated by purchasing the new piece of equipment equate to an 6.0% payback, should Jason go ahead with the investment? Why?
Calculation of the cost of debt capital for Jason's business: Long term borrowings account for 40% of the total capital of Jason's business.
a. Calculation of the cost of debt capital for Jason's business: Long term borrowings account for 40% of the total capital of Jason's business. The relevant interest rate is 7%. The tax rate paid by the business is 30%. To determine the cost of debt capital, you must first calculate the after-tax cost of debt. The formula for calculating after-tax cost of debt is:
After-Tax Cost of Debt = Pre-Tax Cost of Debt x (1 - Tax Rate)After-tax cost of debt
= 7% × (1 - 0.30)
= 4.9%
Therefore, the cost of debt capital is 4.9%.b. Calculation of the cost of equity capital for Jason's business:
The market risk premium is 2%.The government bond rate (risk-free rate) is 1%.
The Beta for the company is 0.8.
Cost of Equity = Risk-Free Rate + Beta x Market Risk Premium Cost of equity =
1% + 0.8 × 2%
= 2.6%
c. With your answers in a. and b. calculate the current WACC for Jason's business that should be used when considering new purchases of equipment:
WACC = Cost of Debt x Debt Weight + Cost of Equity x Equity Weight,
where Debt Weight = 40%, Equity Weight = 60% and the Cost of Debt and Cost of Equity are taken from parts (a) and (b) WACC
= 4.9% × 40% + 2.6% × 60%
= 3.34%
d. Since the payback period is less than the WACC, Jason should go ahead with the investment.
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There is a consumer called Mike. Mike owns an endowment (w0w1) = (2,3). The prices are (p0, p1)
Utility function U (x0, x1) =x0x1
a. Solve the demand function x0(p0, p1)
b. Solve the equation of the offer curve.
a) the demand function of Mike for the good x0 is given as :x0(p0,p1) = (2p0 + 3p1)/p0
b) The demand function of Mike for the good x0 is x0(p0,p1) = (2p0 + 3p1)/p0 and the equation of the offer curve is p1 = (1/3)p0 - (2/9).
a. Solve the demand function x0(p0, p1)The problem statement mentions a consumer called Mike who owns an endowment (w0,w1)=(2,3) and the utility function is given by U(x0,x1)=x0x1.
We need to find the demand function of Mike.Let us assume that Mike spends all his income on purchasing the goods and services. Hence the budget constraint is given as :p0x0 + p1x1 = p0w0 + p1w1
Substituting the given values, we get:p0x0 + p1x1 = 2p0 + 3p1x0 = (2p0 + 3p1)/p0Let us assume that p0 is non-zero. Therefore, the demand function of Mike for the good x0 is given as :x0(p0,p1) = (2p0 + 3p1)/p0
b. Solve the equation of the offer curve.The offer curve of a consumer is defined as the locus of all the optimal bundles that can be purchased by the consumer as the price of one of the goods changes while keeping the utility constant. The offer curve is obtained by solving the demand function with respect to p1.
The demand function of Mike is given by:x0(p0,p1) = (2p0 + 3p1)/p0Solving for p1, we get:p1(x0,p0) = (p0/3)x0 - (2/3)
Substituting the value of x0 from the budget constraint, we get:p1 = (2p0 + 3p1 - 2p0)/3p1 = p0/3 - (2/9)
The equation of the offer curve is:p1 = (1/3)p0 - (2/9)
Therefore, the demand function of Mike for the good x0 is x0(p0,p1) = (2p0 + 3p1)/p0 and the equation of the offer curve is p1 = (1/3)p0 - (2/9).
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a condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called a. market failure. by. general equilibrium. c. pareto optimality. d. partial equilibrium.
A condition in which no change is possible that will make some members of society better off without making some other members of society worse off is called pareto optimality. So the right option is (C) pareto optimality.
Pareto optimality is a state in which no more economic welfare can be attained in society by any individual, given the limited resources in society. It is the notion of the efficient allocation of resources where the well-being of one person cannot be improved without harming someone else's well-being.
Furthermore, when an economy is in Pareto efficiency, it means that the only way to increase the well-being of one individual is to reduce the well-being of another individual; otherwise, the economy is considered Pareto-optimal.
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If a company's assets increase, which of the following is possible? a. Expenses increase b. Liabilities decrease c. Revenues decrease d. Stockholders' Equity increases
If a company's assets increase, it is possible for several scenarios to occur: d. Stockholders' Equity increases
An increase in assets can be funded by additional investments from stockholders or retained earnings, which would result in an increase in stockholders' equity. Alternatively, it is also possible for the following scenarios to occur:
a. Expenses increase: If the increase in assets is accompanied by higher operating costs or expenses, such as increased production costs or administrative expenses, it could lead to an increase in expenses.
c. Revenues decrease: If the increase in assets is not accompanied by a corresponding increase in revenues, it could result in lower revenues or sales.
b. Liabilities decrease: While it is less common, if the increase in assets is due to a reduction in liabilities, such as paying off debt or restructuring liabilities, it could lead to a decrease in liabilities. It's important to note that without additional information about the specific circumstances and changes in the company's financial position, it is not possible to determine the exact outcome.
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On January 1, 2020, Oriole Corporation issued $610,000, 7%, 10-year bonds at face value. Interest is payable annually on January 1 Oriole Corporation has a calendar year end. Prepare all entries related to the bond issue for 2020. (Credit occount tittes are automatically indented when the amount is entered. Do not indent manually)
The entry to record this bond issue includes debiting the Cash account for $610,000, which represents the proceeds from the bond issuance. The corresponding credit entry is made to the Bonds Payable account for the same amount, representing the liability created by issuing the bonds.
When Oriole Corporation issued the bonds, they received $610,000 in cash from the investors. This cash inflow is recorded as a debit to the Cash account, increasing the company's cash balance. At the same time, the company incurs a liability for the bonds issued. The liability is recorded by crediting the Bonds Payable account for the face value of the bonds, which in this case is also $610,000.
The entry for the bond issue in 2020 can be summarized as follows:
- Debit Cash for $610,000
- Credit Bonds Payable for $610,000
This entry reflects the cash received by the company and the corresponding liability created by issuing the bonds. The Bonds Payable account represents the total amount of debt that Oriole Corporation owes to bondholders. The company will pay interest on these bonds annually on January 1st, as specified in the bond terms.
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Zoey Company is considering purchasing new equipment that costs $712,000. Its management estimates that the equipment will generate cash inflows as follows: Year 1 2 3 4 5 $214,000 214,000 252,000 252
The present value of the cash inflows is given as $838228
How to solve for the present value of the cash inflows
The present value is given as future value x the discount factor
This is given as
year 1 = 214000 x 0.909
= $194526
Year 2
214000 x 0.826
= 176764$
Year 3
252000 x 0.751
= $189252
Year 4
= 252000 x 0.683
= $172116
Year 5
= 170000 x 0.621
= $105570
The Net present value is given as $105570 + $172116 + $189252 + 176764$ + $194526
Net Present value = $838228
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Zoey Company is considering purchasing new equipment that costs $712,000. Its management estimates that the equipment will generate cash inflows as follows: Year 1 2 3 4 5 $214,000 214,000 252,000 252,000 170,000 Present value of $1: 6% 1 2 3 4 5 0.943 0.890 0.840 0.792 0.747 7% 0.935 0.873 0.816 0.763 0.713 A. $782,103 B. $793,371 C. $778,114 D. $838,228 8% 0.926 0.857 0.794 0.735 0.681 9% 0.917 0.842 0.772 0.708 0.650 10% 0.909 0.826 0.751 0.683 0.621 The company's required rate of return is 10%. Using the factors in the table below, calculate the present value of the cash inflows. (Round all calculations to the nearest whole dollar.)
What’s the link between the Harrod-Domar model, Rostow’s structural theory, and the Neoclassical Solow model? To what extent can you reconcile their differences? Explain. Based on Mankiw et al. (1992), what are the limitations of the Solow model?
The Harrod-Domar model, Rostow’s structural theory, and the Neoclassical Solow model are related to economic growth and development. They all have their differences, but they aim to explain how a country can achieve long-term economic growth.
Harrod-Domar model, Rostow’s structural theory, and the Neoclassical Solow model are some of the most prominent economic growth models. The Harrod-Domar model proposes that a country can achieve long-term economic growth by investing in capital. It assumes that there is a direct relationship between investment and economic growth. This means that an increase in investment leads to an increase in economic growth. The Rostow’s structural theory explains that economic development happens in five stages: traditional society, preconditions for take-off, take-off, drive to maturity, and high mass consumption.
The model emphasizes that the take-off stage is the most critical point in economic development. If a country manages to reach this stage, it can achieve long-term economic growth.The Neoclassical Solow model was proposed by Robert Solow in 1956. The model suggests that the key to achieving long-term economic growth is technological progress. It assumes that capital and labor are the only factors of production. The model also implies that the rate of technological progress determines the rate of economic growth.To reconcile their differences, one must understand that the models have different assumptions and approaches.
The Harrod-Domar model and Rostow’s structural theory focus on investment and structural change, while the Solow model emphasizes technological progress. Nonetheless, they all aim to explain how a country can achieve long-term economic growth.The Solow model has some limitations, despite its contributions to the economic growth literature. The model assumes that capital and labor are the only factors of production and does not consider other factors such as natural resources. Additionally, it does not provide a clear explanation of how technological progress occurs. Lastly, the model assumes that the economy is always in equilibrium, which is not always the case in the real world.
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Four partners (Adams, Benson, Cagle, and Duncan) jointly own a piece of land with a market value of $400,000. Suppose that the land is subdivided into four parcels S1, S2, S3, and 54. The partners are planning to split up, with each partner getting one of the four parcels. Complete parts (a) through (e). (a) To Adams, sy is worth $40,000 more than S3, S3 and S1 are equal in value, and S4 is worth $20,000 more than S2. Determine which of the four parcels are fair shares to Adams.
The fair shares to Adams share is S1, which is worth $100,000.
We have to determine which of the four parcels are fair shares to Adams. We are given the following information:(i) Adams values parcel S1 at $40,000 more than S3. (ii) S3 and S1 have the same value. (iii) S4 is worth $20,000 more than S2. Therefore, let the value of S3 be x.
Then, the value of S1 is x + 40,000. The value of S2 is y. Then, the value of S4 is y + 20,000.
Also, we know that the total value of the land is $400,000.
So we can say that:x + (x + 40,000) + y + (y + 20,000) = 400,0002x + 2y + 60,000 = 400,0002x + 2y = 340,000x + y = 170,000
Now, we need to determine which of the four parcels is a fair share for Adams. Let’s start by calculating the value of each parcel:
Adams’ share: S1 = x + 40,000Benson’s share: S3 = xCagle’s share: S2 = yDuncan’s share: S4 = y + 20,000We are given that the shares are fair, so they must all have the same value.
Hence, we have:x + 40,000 = x + y = y + 20,000 Rearranging the above equations, we have:y = x + 40,000y = x – 20,000Solving for x, we get:x = $60,000
Substituting this into the equations above, we get:y = $100,000So, Adams' share is S1, which is worth $100,000,
while Benson’s and Cagle’s shares are S3 and S2, respectively, which are both worth $60,000. Finally, Duncan’s share is S4, which is worth $120,000.
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1: A portfolio manager intends to periodically sell puts. How
does this resemble issuing insurance?
Periodically selling puts as a portfolio manager resembles issuing insurance in the sense that both involve assuming a financial risk in exchange for receiving a premium. However, it is important to note that while there are similarities, there are also distinct differences between the two activities.
When a portfolio manager sells a put option, they are effectively offering the buyer the right to sell a specific asset at a predetermined price (the strike price) within a certain timeframe. In return for granting this right, the portfolio manager receives a premium from the buyer. This premium acts as compensation for taking on the risk of potential price declines in the underlying asset.
Similarly, when an insurance company issues an insurance policy, they are assuming the risk of a potential loss or damage to the insured property or individual. In exchange for providing coverage, the insurance company collects premiums from the policyholders. These premiums serve as compensation for the risk they undertake.
Both activities involve assessing risk and pricing it accordingly. In the case of selling puts, the portfolio manager evaluates the probability of the underlying asset's price falling below the strike price within the specified timeframe. Based on this assessment, they determine the premium to charge. Similarly, insurance companies assess the risks associated with insuring a particular property or individual and set premiums accordingly.
However, there are notable differences between selling puts and issuing insurance. First, selling puts typically involves a shorter time horizon and is more focused on the fluctuations in the financial markets. Insurance policies, on the other hand, often have longer terms and cover a broader range of risks beyond market fluctuations.
Second, selling puts is a discretionary investment strategy that portfolio managers undertake as part of their overall investment approach. They do not have the same regulatory and legal obligations as insurance companies, which must comply with specific regulations and maintain solvency requirements.
In summary, while periodically selling puts as a portfolio manager shares similarities with issuing insurance in terms of assuming risk in exchange for a premium, there are important distinctions between the two activities. Selling puts is a discretionary investment strategy focused on market fluctuations, while insurance involves longer-term coverage of a broader range of risks and is subject to specific regulations.
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The Government has been providing payment support for those affected by COVID-19. Assuming an amount of $100 billion was paid by the Government to affected households, explain why this might potentially increase GDP by an amount that is a multiple of $100 billion.
Include the following in your answer,
a) definition of marginal propensity to consume (mpc),
b) definition of marginal propensity to save (mps),
c) the spending multiplier formula,
d) why the increase in GDP may potentially be greater than $100 billion.
Consider a small open economy with marginal propensity to save 0.4 and marginal propensity to import 0.2. Suppose Investment is independent of the level of output (Y) and real exchange rate is 1. Suppose Government increases its expenditure (G) by 5 million dollars: (round your answer to two decimal places) The multiplier for this economy is 1.67 and equilibrium output would increase 1) by 8.35 million dollars and net exports would increase by 1.65 million dollars 2) The multiplier for this economy is 0.33 and equilibrium output would increase by 8.35 million dollars and net exports would increase by 1.65 million dollars 3) more than one answer is correct 4) The multiplier for this economy is 1.67 and equilibrium output would increase by 8.35 million dollars and net exports would fall by 1.67 million dollars 5) The multiplier for this economy is 1.67 and equilibrium output would decrease by 8.35 million dollars and net exports would increase by 1.65 million dollars 6) none of the answers are correct
The correct option is "The multiplier for this economy is 1.67 and equilibrium output would increase by 8.35 million dollars and net exports would fall by 1.67 million dollars". Option 4 is the answer.
In a small open economy with marginal propensity to save (MPS) 0.4 and marginal propensity to import (MPM) 0.2, suppose government expenditure (G) increases by 5 million dollars. The given real exchange rate is 1. The multiplier for this economy is 1.67. We need to calculate the increase in equilibrium output and net exports, considering the given information and formula.
Multiplier (K) is given as:
K = 1 / (1 - MPC)
Where,
MPC = MPS + MPM + MPT (Marginal Propensity to Tax)
Here, Investment is independent of the level of output (Y), which means Investment (I) = I0 = constant and MPT = 0 (Marginal Propensity to Tax).
MPC = MPS + MPM + MPT = 0.4 + 0.2 + 0 = 0.6So, K = 1 / (1 - MPC) = 1 / (1 - 0.6) = 2.5
Equilibrium output change (ΔY) is given by the formula:
ΔY = K x ΔGHere, ΔG = $5 million
So, ΔY = 2.5 x $5 million = $12.5 million
Net export change (ΔNX) is given by the formula:
ΔNX = MPM x ΔY
Here, MPM = 0.2, ΔY = $12.5 million
So, ΔNX = 0.2 x $12.5 million = $2.5 million
Now, we can calculate the change in net exports by subtracting the initial net export (NX) from ΔNX:
NX = - $2.5 million - $1.0 million (initial net export = -M = -$1.0 million, as the real exchange rate is 1)
NX = - $3.5 million
ΔNX - NX = $2.5 million - (-$3.5 million) = $6.0 million
Therefore, equilibrium output would increase by $12.5 million and net exports would fall by $6.0 million. So, the correct option is "The multiplier for this economy is 1.67 and equilibrium output would increase by 8.35 million dollars and net exports would fall by 1.67 million dollars".Option 4 is the answer.
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The cost of production (C) for widgets includes a fixed cost of $10 and an additional variable cost
of $2 per widget produced. The unit demand (x) for widgets is inversely proportional to the cube
of the advertised price per unit (p), as given by the model:
p3x = 8.
Assuming that the production level is adjusted to match demand, and units sold also matches
demand, so the incoming revenue (R) is given by R = px, and profit (P ) is given by the standard
model P = R −C, begin by modeling profit as a functions of units x, and then remodel profit
as a function of price per unit p.
Then calculate the price per unit which maximizes the profit model (when written in terms of x),
then calculate the unit production which maximizes the profit model (when written in terms of
p), and finally report the maximum profit obtainable, verifying it is indeed a maximum.
Do the two approaches agree on the maximum profit? Should you invest?
To model profit as a function of units sold (x), we first need to find the revenue function (R). The unit demand (x) for widgets is inversely proportional to the cube of the advertised price per unit (p), given by p^3x = 8. Rearranging this equation, we have:
x = [tex]8/p^3[/tex]
Substituting this into the revenue function R = px, we get:
R = p * [tex](8/p^3) = 8/p^2[/tex]
Next, we can express the profit (P) as the difference between revenue (R) and the cost of production (C). The cost of production includes a fixed cost of $10 and an additional variable cost of $2 per widget produced. Therefore, the cost function (C) can be written as:
C = 10 + 2x
Substituting the expression for x from earlier, we have:
C = 10 + 2 * [tex](8/p^3) = 10 + 16/p^3[/tex]
Now we can express profit (P) as:
P = R - C = [tex](8/p^2) - (10 + 16/p^3) = 8/p^2 - 10 - 16/p^3[/tex]
To find the price per unit (p) that maximizes profit (P), we can take the derivative of P with respect to p and set it equal to zero:
dP/dp = [tex]-16/p^3 + 32/p^4[/tex] = 0
Simplifying this equation, we get:
16/p^3 = 32/p^4
Cross-multiplying and rearranging, we have:
16p = 32
p = 2
So, the price per unit that maximizes profit is p = 2.
To calculate the unit production (x) that maximizes profit, we can substitute the value of p = 2 into the expression for x:
x =[tex]8/p^3 = 8/2^3[/tex] = 8/8 = 1
Therefore, the unit production that maximizes profit is x = 1.
Now we can substitute these values of p and x back into the profit function to find the maximum profit (P):
P =[tex]8/p^2 - 10 - 16/p^3[/tex]
= [tex]8/2^2 - 10 - 16/2^3[/tex]
= 2 - 10 - 2
= -10
The maximum profit obtainable is -10.
Both approaches, modeling profit as a function of units (x) and modeling profit as a function of price per unit (p), agree on the maximum profit of -10.
Since the maximum profit is negative, it indicates a loss rather than a gain. Therefore, investing in this production with the given cost structure and demand function would result in a net loss.
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The profit model in terms of units is P = px - (10+2x). The profit model in terms of price is P = 8/p^3 - (10+2/p). The price which maximizes profit is $2 and the unit production which maximizes profit is 16. The maximum profit is $128. The two approaches agree on the maximum profit. Yes, you should invest.
A comprehensive breakdown of the solution is provided below:The total production expense consists of $10 that remain constant and an additional $2 for each unit that is manufactured.
If the price of widgets is increased by two times its original amount, the demand for widgets will decrease to one-eighth its original level due to its inverse proportionality to the cube of the price.
The revenue from selling x widgets is px.
The profit is the revenue minus the cost of production, so P = px - (10+2x).
We can write the profit model in terms of price by substituting x = 8/p^3 to get P = 8/p^3 - (10+2/p).
The price which maximizes profit is found by setting the derivative of P with respect to p equal to zero and solving for p. This gives p = 2.
The unit production which maximizes profit is found by substituting p = 2 into the profit model to get x = 16.
The maximum profit is found by substituting p = 2 and x = 16 into the profit model to get P = 128.
The two approaches agree on the maximum profit because they both use the same profit model.
Yes, you should invest because the maximum profit is positive.
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XYZ has the following information available for one of its divisions for the current year Net operating income $3,500 Average balance of operating assets $4,000 XYZ requires a minimum return of 30% from its divisions. What is the residual income of that division? Multiple Choice $500 $4,000 $2,300 $7500
The residual income of that division is $2,300.
Residual income is the amount of income that is generated after the operating expenses have been subtracted from the revenue or gross income. It is the amount of profit that an individual or a company has earned after all the expenses have been paid. It is a method of determining the true profitability of a company.
Therefore, the residual income for XYZ's division can be calculated using the formula:
Residual income = Net operating income - (Minimum required return x Average balance of operating assets)
Now substituting the values given in the problem,
Residual income = $3,500 - (0.30 x $4,000)
Residual income = $3,500 - $1,200
Residual income = $2,300
Therefore, the residual income of that division is $2,300. Option 3 ($2,300) is the correct choice.
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A price floor (maximum price) causes (A) a supply surplus (excess supply) (B) a higher supply curve (C) a demand surplus (excess demand) (D) a lower demand curve
A price floor (maximum price) causes c) a demand surplus (excess demand).
Price floor is the legal minimum price a seller can sell a product or service. A price floor is set above the market equilibrium price. When a price floor is imposed, it means the market price of a good or service cannot fall below that level. When the price floor is imposed, it is above the market equilibrium price. This is why it causes a shortage of the good or service being sold.
A shortage is the difference between the quantity demanded and the quantity supplied at the given price. A shortage arises when the quantity demanded is greater than the quantity supplied. Therefore, if a price floor is imposed on a good or service, it creates a shortage.The opposite of a shortage is a surplus. A surplus is the difference between the quantity supplied and the quantity demanded at a given price. A surplus arises when the quantity supplied is greater than the quantity demanded. So, when a price floor is imposed, it does not cause a supply surplus (excess supply).
Therefore, the correct answer is c) a demand surplus (excess demand).
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7.
Why must private ownership of property be guaranteed before a free market economy will work?
The government will retain too much power if there is a guarantee.
Entrepreneurs need to be assured that they will benefit from a successful project.
Without such a guarantee, criminals can steal the profits from a good business.
Unemployment will be too high for the private ownership to work without the guarantee.
Answer:
I think it would be either B or C
I can't tell between those too I'm sorry
What is the optimal allocation of scarce resources over the alternative use that can be made of them? (600 word)
The optimal allocation of scarce resources refers to determining the most efficient and effective distribution of limited resources among various competing uses.
What is the explantion for this?It involves evaluating and comparing the potential benefits and costs associated with different alternatives.
The goal is to allocate resources in a way that maximizes overall societal welfare or the organization's objectives.
This requires considering factors such as opportunity costs, resource productivity, demand, supply, and prioritizing uses that yield the greatest net benefit or value.
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Consider the following general equation for the dynamics of a renewable resource, where Q, is the harvested/extracted in time t and S, is the stock of resource in time t: St+1 = St - Qt+ ASt 1.1. (5 points) What does the term AS, represent?
The term AS in the following general equation for the dynamics of a renewable resource represents the natural growth rate of the resource.
A renewable resource can be defined as any natural resource that regenerates itself over time. Renewable resources are crucial to the economy and environment. Examples of renewable resources include water, wind, sunlight, timber, and geothermal energy, among others.According to the equation St+1 = St - Qt + ASt, the harvested/extracted resource in time t is represented by Q and the stock of the resource in time t is represented by S. The term AS, on the other hand, represents the natural growth rate of the resource.A renewable resource has a natural growth rate that occurs regardless of human intervention. The growth rate of the resource is directly proportional to the size of the resource stock at any given time. The more the stock of the resource, the higher the rate of natural growth.In summary, the term AS in the equation represents the natural growth rate of the renewable resource and is proportional to the size of the stock of the resource at any given time.
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deadweight losses from tariffs and quotas in high-income countries deadweight losses from tariffs and quotas in high-income countries can be justified by jobs protected. are small enough to be ignored. have been reduced since the mid-1990s. are greater than consumer losses from tariffs and quotas.
Deadweight losses from tariffs and quotas in high-income countries are D. greater than consumer losses from tariffs and quotas.
The deadweight losses from tariffs and quotas in high-income countries arise from the difference between the maximum amount that consumers are willing to pay for a particular product and the minimum amount that producers are willing to accept to produce the same product. This difference in price causes a net loss of efficiency, which leads to deadweight losses.
The deadweight losses from tariffs and quotas cannot be justified by jobs protected. This is because trade protection only generates temporary employment gains and could reduce overall employment in the long run. The main reason for the reduction is due to the growth in international trade and the signing of the World Trade Organization (WTO) agreement, which sought to reduce trade barriers and increase trade liberalization. In conclusion, deadweight losses from tariffs and quotas in high-income countries are greater than consumer losses from tariffs and quotas.
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If MM's Proposition I holds, minimizing the weighted average cost of capital (WACC) is the same as maximizing the
a. profits of the firm.
b. book value of the firm.
c. market value of the firm.
d. liquidating value of the firm
If MM's Proposition I holds, minimizing the weighted average cost of capital (WACC) is the same as maximizing the market value of the firm. The Modigliani-Miller Proposition I is a financial theory that states that the value of a company is independent of its capital structure.
The correct option is c .
In other words, the total value of the firm is determined by its earning power and the risk of its underlying assets, which are unaffected by its choice of financing. MM Proposition I implies that the cost of capital of a company is independent of its financing mix, whether it is financed by equity or debt, and therefore there is no optimal capital structure. What is the weighted average cost of capital (WACC)?The weighted average cost of capital (WACC) is the average cost of a company's debt and equity capital, weighted by their respective proportions.
It is the minimum return that investors require to finance a company's operations, and it reflects the riskiness of the company's assets and the cost of borrowing. What is the relationship between WACC and firm value?According to MM Proposition I, the weighted average cost of capital (WACC) is independent of a company's capital structure, and therefore minimizing WACC is the same as maximizing the market value of the firm. This means that the lower a company's WACC, the higher its market value, because a lower WACC means that the company is less risky and more profitable. Therefore, by minimizing WACC, a company can increase its market value, which is the ultimate goal of any firm. Thus, option (c) is the correct answer. To summarize, MM Proposition I states that the value of a company is independent of its capital structure, and minimizing WACC is the same as maximizing the market value of the firm.
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