Q1. Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a widevarietyofillnesses.Amajorproductforeachcompanyisageneric equivalentofanantibioticusedtotreatpostoperativeinfections.Proprietarycostandoutputinformationforeachcompanyrevealsthefollowingrelationsbetween marginal cost and output:

MCC	=$10+$0.004QC	(Cornell)
MCP	=$8 +$0.008QP	(Penn)

Thewholesalemarketforgenericdrugsis vigorously pricescompetitive,andneitherfirmis abletochargeapremiumforits products. Thus, P=MR inthis market.

1. Determine the supply curve for each firm. Express price as a function of quantity andquantity as a function of price. (Hint: Set P = MR = MC to find each firm'ssupplycurve.)
2. Calculate thequantitysupplied byeach firmat prices of$8,$10,and$12.Whatistheminimum pricenecessaryforeachindividualfirmtosupplyoutput?
3. Assumingthesetwofirmsmakeuptheentireindustry,determine theindustrysupply curvewhenP
4. Determine the industry supply curve when P>$10. To check your answer,calculatequantityatanindustrypriceof$12andcompareyouranswerwithpartB.

----------

Q2.JohnnyWalker, thegeneralmanager oftheEasternToolCompany, isconsideringintroducingsomenewtoolstothecompany'sproduct line.Thetopmanagementofthefirmhasidentifiedthreetypesoftools(referredtoasprojects,BandC).Thevariousdivisionsofthefirmhaveprovided the data given in the following table on these three possible projects. The companyhasalimited capital budgetof $2.4 million forthe comingyear.

	ProjectA	ProjectB	ProjectC
Presentvalueofnet cashflows	$3,000,000	$1,750,000	$1,400,000
Initialcostofthe project	2,400,000	1,300,000	1,100,000

1. Whichproject(s)wouldthefirmundertakeifitusedthenetpresentvalue(NPV)investmentcriterion?
2. Isthisthecorrect decision?Why?

------------

Q3. Last year Chloe quit her $60,000 per year job as a web-page designer for a leadingcomputersoftwarecompanytobuyasmallhotelonSaranacLake.Thepurchase priceofthehotelwas$300,000,which shefinancedbysellingatax-freemunicipalbondthatearned5.5%peryear.Chloe'stotaloperatingexpenses andrevenues were$100,000and$200,000,respectively.

1. CalculateChloe'saccountingprofit.
2. CalculateChloe'seconomicprofit.

Q4. Andrew Oxnard, chief financial officer, has been asked by Harry Pendel, chiefexecutive officer and co-founder of Pendel & Braithwaite, Ltd. (P&B), to analyze two capitalinvestment projects (projects A and B), which are expected to generate the following profit (p)streams:

ProfitStreams forProjectsA and B

Period,t	??($)	??($)
1	100,000	350,000
2	200,000	300,000
3	250,000	200,000
4	300,00	100,000
5	325,000	100,000
Total	1,175,000	1,050,000

Profits are realized at the end of each period. Assuming that P&B is a profit maximizer if thediscountrateforbothprojects is12%,which ofthe twoprojects shouldbeadopted?

--------

Q5.Afirmhas thefollowingtotalrevenueandtotalcostfunctions: