Question 1: The lumber industry was hit hard by the downturn in housing starts in 2010

and 2011. Prices plunged from $290 per thousand board feet to less than $200 per

thousand board feet. Many observers believed this price decrease was caused by the

slowing of new home construction because of the glut of unsold homes on the market. Was

this price decrease caused by a shift in the supply or demand curve? Depict a graph

showing this situation.

Solution:

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Question 2: If the expected profits for a company is fixed at $ 1 million yearly for the next 5 years and the interest rate is 5%, what is the present value of the company's profits in the next 5 years?

Solution:

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Question 3: There are two measures of profit, accounting profit and economic profit. What is the main difference between the two?

Solution: