## Transcribed Text

1. Consider an investment that returns $50,000 a year for 3 years. That is at the end of each year, for
three years, it pays $50,000. Assuming the alternative is an annual interest rate of 10, what is the
present value of this income stream?
2. Suppose the benefit and cost structure of a firm is:
B(Q)=100Q-2Q²
c(Q)=Q²
What value makes the net marginal benefit NMB(Q) = MB(Q)-MC(Q)zero? -
3. You have computer a market demand curve for X and it looks like this:
- 8Py + 0.5M
where Px is the price of X
Py is the price of a related good Y
M is the income of the buyers in the market.
What can you say about the demand from good X from this demand curve?
4. Given the above demand curve, how many of good X will consumer purchase when Px is $100 a unit,
Py is $50 a unit, and M is $25,000?
5. A linear supply curve is Qx S = 5 - 4Px. Does it follow the law of supply? Why?
6. Your research department estimates that the supply function for televisions is given by:
QX5=5,000 + 5Px-10PR-2Pw = -
When Px is $800, PR is $200, and Pw is $2500, how many television sets are produced?
7. Sketch out a supply and demand diagram for snow tires and explain (comparative statics) what is
likely to happen to the price and sales of snow tires if tire manufacturers were able to produce an all-
weather tire that was equally as good as a snow tire for all but the most severe conditions.
8. Suppose the cross-price elasticity of demand between Coke and Pepsi is 0.5. If the price of Pepsi is
projected to go up 10%, how much will the demand for Coke change?
9. Based on previous studies, you believe the linear demand function for your good is:
+ 7Py + 0.5M + 250Ax
where Px is the price of X
Py is the price of a related good Y
M is the income of the buyers in the market
and Ax is advertising for X.
The
good
currently
sells
for
$25,
the
related
good
sells
for
$40,
the
company
is
spending
$50
on
advertising,
and
average
consumer
income
is
$25,000.
The
marketing
manager
wants
to
know
the
own
price elasticity and income elasticity for this good. Compute them.
10. The marketing manager also wants to know how much sales will increase if she increases the
advertising budget by 10%. Compute this from the information given.

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