please see the word file I know the answers but how we get that can you help me understanding the steps for chapter 3 &4

SOLUTIONS_REVIEW TEST 1 CHAPTER 1 1) Mathematical Exercises p.36 (1) Using a discount rate of 6.5 percent, calculate the present value of a $1000 payment to be received at the end of: (a) One year PV = FV/(1 + r)t = $1,000/(1.065) = $938.97 (b) Two years PV = $1,000/(1.065)2 = $881.66 (c) Three years PV = $1,000/(1.065)3 = $827.85 (2) What is the present value of a firm with a five-year life span that earns the following stream of expected profit? (Treat all profits as being received at year-end). Use a risk-adjusted discount rate of 12 percent. Year 1 2 3 4 5 5 PV = t =0 NCFt (1 + r) t = $10,000 1 (1.12) Expected Profit $10,000 $20,000 $50,000 $75,000 $50,000 + $20,000 (1.12) 2 + $50,000 (1.12) 3 + $75,000 (1.12) 4 + $50,000 (1.12)5 = $8,929 + 15,944 + 35,589 + 47,664 + 28,371 = $136,497 2) At the beginning of 2014, market analysts expect Atlantis Company, holder of a valuable patent, to earn the following stream of economic profits over the next five years. At the end of five years, Atlantis will lose its patent protection, and analysts expect economic profit to be zero after five years. Year Expected Economic Profit 2014 $ 225,000 2015 $ 325,000 2016 $ 425,000 2017 $ 200,000 2018 $ 100,000 If investors apply an annual risk-adjusted discount rate of 15%, the value of Atlantis Company in 2014 is $______________________, which is also the maximum price investors would be willing to pay for Atlantis Company. $884,912 CHAPTER 2 3) Use the following general linear demand relation to answer the following question: Qd = 680 - 9P + 0.006 M - 4PR where M is income and PR is the price of a related good, R. From this relation it is apparent that the good is: a. an inferior good b. a substitute for good R c. a normal good d. a complement for good R e. both c and d If M = $15,000 and PR = $20, the demand function is a. b. Qd = 690 - 9P . c. Qd = 680 - 9P . d. P = 680 - 9Qd . e. P = 690 - 9Qd . Qd = 800 -19P . If M = $15,000 and PR = $20 and the supply function is Qs = 30 + 3P , equilibrium price and quantity are, respectively, a. b. c. d. e. P = $55 and Q = 195. P = $6 and Q = 38. P = $12 and Q = 200. P = $50 and Q = 170. P = $40 and Q = 250. If M = $15,000 and PR = $20 and the supply function is Qs = 30 + 3P , then, when the price of the good is $60, a. there is a shortage of 60 units of the good. b. there is equilibrium in the market. c. there is a surplus of 60 units of the good. d. the quantities demanded and supplied are indeterminate. If M = $15,000 and PR = $20 and the supply function is Qs = 30 + 3P , then, when the price of the good is $40, a. there is equilibrium in the market. b. there is a shortage of 180 units of the good. c. there is a surplus of 180 units of the good. d. there is a shortage of 80 units of the good. 4) Use the following demand and supply functions to answer the following. Demand: Qd = 50 - 4P Supply: Qs = 20 + 2P If the price is $2, there is a a. b. c. d. e. surplus of 10 units. shortage of 10 units. surplus of 30 units. shortage of 18 units. none of the above 5) In the above figure, if price is $16 there is a. a shortage of 250 units. b. a surplus of 250 units. c. a shortage of 125 units. d. a surplus of 125 units. e. equilibrium in the market. If the price is $6, the resulting a. surplus will lead to a fall in price. b. shortage will lead to a fall in price. c. surplus will lead to a rise in price. d. shortage will lead to a rise in price. If price is $8, a. there will be a surplus of 150 units. b. there will be a shortage of 150 units. c. price will fall. d. shortage of 75 units. e. surplus of 75 units. 6) The general demand function for good A is Qd = 1,200 - 6P + 0.5M -10PB + 4+ 2 Pe + 3N where Qd = quantity demanded of good A per month, P = the price of good A, M = average household income, PB = price of related good B, = a consumer taste index, Pe = price consumers expect to pay next month for good A, and N = number of buyers in market for good. a. b. c. Good A is a(n) ___________ good because the slope parameter on __________ is _________. Goods A and B are ________________ because the slope parameter on ________ is _____________. When P = $6, M = $40,000, PB = $20, = 8, Pe = $2, and N = 10,000, quantity demanded of good A is ____________ units per month. a. normal; M; positive b. complements; PB; negative c. 51,000 CHAPTER 3 7) Problem 2 p. 113. Appalachian Coal Mining should minimize net cost by choosing that level of pollution (P) where the marginal benefit of pollution reduction equals the marginal cost of pollution reduction: 1,000 - 10P = 40P * = 20 units of pollution. P 8) Problem 4 p. 114. a. 2 b. $500 (= $25 20 radios not stolen due to hiring 1 guard) c. 4 9) Problem 7 pp 114-115. a. With a payroll of $160,000, the manager should hire five people with high school diplomas and two people with bachelor's degrees. This choice maximizes the number of customers served because the last dollar spent on each type of employee yields the same addition to the number of customers served; MBHS / PHS (60 / $20,000) = MBB / PB (90 / $30,000) = 0.003. b. No, she is not making the correct decision. If the manager hires three employees of each type, the marginal contributions of the last person hired are the same for both types of employees (80), but the marginal contribution per dollar is higher for a high school diploma (80/$20,000) than for a bachelor's degree (80/$30,000). By hiring more employees with a high school diploma and fewer with a bachelor's degree, the manager can spend the same amount on payroll and increase the number of customers served. c. With a budget of $240,000, she should hire six people with high school diplomas and four people with bachelor's degrees. 10) The marginal benefit and marginal cost functions for activity A are MB = 100 0.04A MC = 28 + 0.02A a. The optimal level of A is _________ units at which MB = _________ and MC = ____________. b. The 800th unit of A increases total benefit by $_________ and total cost by $_________ thereby _____________________ net benefit by $__________. c. The 1,400th unit of A increases total benefit by $______ and total cost by $______ thereby _____________________ net benefit by $__________. a. b. c. 1200; $52; $52 $68; $44; increasing; $24 $44; $56; decreasing; $12 CHAPTER 4 11) The linear regression equation, Y = a + bX, was estimated. The following computer printout was obtained: DEPENDENT VARIABLE: Y RSQUARE FRATIO PVALUE ON F 18 0.3066 7.076 0.0171 VARIABLE PARAMETER ESTIMATE STANDARD ERROR TRATIO PVALUE INTERCEPT 15.48 5.09 3.04 0.0008 X 21.36 8.03 2.66 0.0171 OBSERVATIONS: Given the above information, the parameter estimate of a indicates a. when X is zero, Y is 5.09. b. when X is zero, Y is 15.48. c. when Y is zero, X is -21.36. d. when Y is zero, X is 8.03. Given the above information, the parameter estimate of b indicates a. X increases by 8.03 units when Y increases by one unit. b. X decreases by 21.36 units when Y increases by one unit. c. Y decreases by 2.66 units when X increases by one unit. d. a 10-unit decrease in X results in a 213.6 unit increase in Y. Given the above information, what is the critical value of t at the 1% level of significance? a. 1.746 b. 2.120 c. 2.878 d. 2.921 Given the above information, which of the following statements is correct at the 1% level of significance? a. Both a and b are statistically significant. b. Neither a nor b is statistically significant. c. a is statistically significant, but b is not. b is statistically significant, but a is not. d. Given the above information, the value of the R 2 statistic indicates that a. 0.3066% of the total variation in Y is explained by the regression equation. b. 0.3066% of the total variation in X is explained by the regression equation. c. 30.66% of the total variation in Y is explained by the regression equation. d. 30.66% of the total variation in X is explained by the regression equation. 12) Suppose you are testing the statistical significance (at the 5% significance level) of a parameter estimate from the estimated regression equation: Y = a + bR + cS + dW which is estimated using a time-series sample containing monthly observations over a 30month time period. The critical value of the appropriate test statistic is a. tcritical = 2.042. b. tcritical = 2.056. c. Fcritical = 4.22. d. Fcritical = 7.76. 13) Suppose you are testing the statistical significance (at the 1% significance level) of a parameter estimate from the estimated regression model: M = a + bR + cI which is estimated using a crosssection data set on 22 firms. The critical value of the appropriate test statistic is a. tcritical = 2.861. b. tcritical = 2.845. c. tcritical = 2.845. d. Fcritical = 5.93. e. Fcritical = 19.44