Question.

Little Bo Peep Limited produces cup cakes for resale to schools in Jamaica. The company is currently in the process of establishing a master budget on a quarterly basis for this coming scal year, which ends December 31, 2020. Quarterly sales for 2019 were as follows (1 unit = l batch): First quarter Second quarter Third quarter 83,200 Fourth quarter units Unit sales are expected to increase 20 percent, and each unit is expected to sell for $8. The management prefers to maintain ending nished goods inventory equal to 10 percent of next quarter's sales. Assume nished goods inventory at the end of the fourth quarter budget year is estimated at 9,000 units. 1. Prepare a sales budget for Little Bo Peep Limited. (Hint: be sure to increase last year's unit sales by 20 percent.) The market inverse demand curve is P(y) = 10 - 2y, and a monopolist's cost curve is y' + 2. (a) What output level y maximizes the monopolist's revenue? What output level y maximizes the monopolist's profit? Identify which of the two output levels is lower, and explain why using economic intuition. (b) Suppose a second firm with cost curve y' + 2 is considering entering the market. If after entry, the firms would compete a la Cournot, what would be the Cournot- Nash equilibrium output levels y and y2 of firms 1 and 2? What would be the equilibrium profits for each firm? Will firm 2 choose to enter the market? (c) Suppose that if firm 2 enters, both firms collude, choosing output levels that maxi- mize total profits and then split the profits equally between them. What would be the profits to each firm? Will firm 2 choose to enter the market in this case?4) A monopolist faces a demand curve given by Do) = 100 - 210. Its cost function is c{y) = 20 + y. a) What is the inverse demand function p['y)? What is its optimal level of output and price? What are the monopolist's prots? 1:) Suppose the monopolist were forced to set p equal to marginal cost. What would y be? What would the monopolist's pIots be? In reporting on real GDP growth in the second quarter of 2016, an article on Reuters news noted that: "U.S. economic growth unexpectedly remained tepid in the second quarter as inventories fell" and also that the "inventory drawdown was almost across the board." Source: Lucia Matikani, "Inventory Reduction Curbs U.S. Economic Growth; Rebound Expected," reuters.com, July 20, 2016. If companies are drawing down inventories is aggregate expenditure likely to have been larger or smaller than GDP? O A. Smaller than GDP, because more is being bought than produced. O B. Larger than GDP, because less is being bought than produced. O C. Larger than GDP, because more is being bought than produced. O D. Smaller than GDP, because less is being bought than produced. The chief economist at UniCredit Research is quoted in the article as stating that: "The U.S. economy just went through a meaningful inventory correction cycle." What would an "inventory correction cycle" be? O A. A situation where companies deplete low levels of inventory to earn economic profits. O B. The process of companies increasing production levels to create more inventory. O C. A situation where inventory levels are held constant for stability. O D. The process of companies decreasing or increasing actual inventories to match planned inventories. The article states that: "Though the inventory drawdown weighed on GDP growth, that is likely to provide a boost to output in the coming quarters." Why would an inventory drawdown boost output in the coming quarters? O A. Once the firms are able to sell off their excess inventories, consumption will be lower. O B. Once inventories reach desired levels, firms will increase production to match expected planned aggregate expenditures. O C. This would indicate that the quantity of output demanded is greater than the quantity of output supplied, and production levels will rise. O D. An inventory drawdown would reduce storage costs, thus giving firms an incentive to produce more output.13. If current RGDP is greater than equilibrium RGDP, then a. there will be an unplanned increase in inventory c. there will be no change in inventory b. there will be an unplanned decrease in inventory d. RGDP will rise 19. If current RGDP is greater than equilibrium RGDP, then a. planned leakages exceed planned injections b. planned leakages are less than planned injections c. planned leakages equal planned injections d. RGDP will rise 20. If there is an unplanned $10 billion increase in inventory, this means that current RGDP is 1. greater than equilibrium RGDP d. equal to equilibrium RGDP b. less than equilibrium RGDP e. can't tell from the information given c. equal to equilibrium RGDP 21. Assume the economy is initially in equilibrium. If RGDP decreases so that current RGDP is now less than equilibrium RGDP, then a. there will be an unplanned increase in inventory b, aggregate expenditure is less than aggregate output c. planned leakages are less than planned injections d. RGDP will decrease further