Question:
The Westhouser Paper Company in the state of Washington currently has an option to purchase a piece of land with good timber forest on it. It is now May 1, and the current price of the land is $2.2 million. Westhouser does not actually need the timber from this land until the beginning of July, but its top executives fear that another company might buy the land between now and the beginning of July. They assess that there is 1 chance out of 20 that a competitor will buy the land during May. If this does not occur, they assess that there is 1 chance out of 10 that the competitor will buy the land during June. If Westhouser does not take advantage of its current option, it can attempt to buy the land at the beginning of June or the beginning of July, provided that it is still available.
Westhouser's incentive for delaying the purchase is that its financial experts believe there is a good chance that the price of the land will fall significantly in one or both of the next two months. They assess the possible price decreases and their probabilities in Tables 1 and 2. Table 1 shows the probabilities of the possible price decreases during May. Table 2 shows the conditional probabilities of the possible price decreases in June, given the price decrease in May. For example, if the price decrease in May is $60,000, then the possible price decreases in June are $0, $30,000, and $60,000 with respective probabilities 0.6, 0.2, and 0.2.
If Westhouser purchases the land, it believes that it can gross $3 million. (This does not count the cost of purchasing the land.) But if it does not purchase the land, it believes that it can make $650,000 from alternative investments. What should the company do?
#3 - 20 points: Consider a 2-person, 2-good economy. Endowments and utility functions are: el = (1,2) , u (x, y) = mintc, y} = (3,2) , u (x, y ) = cty Draw a carefully labeled Edgeworth box diagram showing: a) endowments b) indifference curves through the endowments c) the set of allocations that both agents prefer to the endowmentsConsider an economy with two individuals, Ann and Bob and two goods r and J. Ann's initial endowment is (50, 20) and Bob's initial endowment is (20,50). Ann's utility function is uA(I, y) = Vx x y and Bob's utility function is up = x x y. (1) / 2.5 points ] Draw the Edgeworth bor and show the initial endowment, the indifference curves for both individuals associated with their endowments. (2) / 12.5 points ) Is the initial endowment Pareto efficient? Why? Determine the contract curve.Culver Radio, Inc. As Clyde Turner, president and owner of Culver Radio, entered his Los Angeles office on March 1. 1983. he received a cable indicating acceptance of Culver's offer to supply Klaus Pelzer, a West German distributor, with approximately one quarter million dollars of radio equipment for the remote opening of gates and garages in industrial plants and parking lots, the cable also indicated that Pelzer had wired the requested deposit of DM62,500 directly to Culver's West Los Angeles bank that same day. Turner hoped the German order would mark the beginning of Culver's return to being profitable. Culver's 1982 net loss of $24,000 had been the combined result of a general recession in the United States and a lack of marketing effort to find new customers. Culver Radio was formed in the mid-1960s to manufacture radio-activated controls for opening residential garage doors. California's boom in residential construction and the increase in suburban single family residences with two-car garages created the potential. The level of affluence of new home buyers in the 1960s and 1970s led to a willingness to spend about $400 to be able to open a garage door without having to first get our of the car. Sales rose rapidly and profits were more than adequate. In 1979, however, new housing construction tapered off. Culver's high quality meant that the replacement market was virtually zero, and sales began to slip. Turner realized as early as 1978 that the suburban residential market would not regain its former strength, so he turned to development of an industrial version of his basic product. The industrial model was for use by delivery trucks and other vehicles entering or leaving warehouse compounds where security was important. An approaching or departing truck would notify plant security by radio of a desire to pass through the gate, but final control of the gate remained with plant security. Security could either activate the gates to open automatically on radio request from the truck, a common procedure during daylight hours; or it could control the actual gate directly. opening it after verification that the vehicle and driver were indeed authorized to enter or leave. The industrial model proved particularly useful in inner city areas where crime was a problem. Sales of the industrial model in 1980 were good, but the recession of 1981 and 1982 caused a leveling out of sales volume while costs continued to rise with inflation.. In 1981 Culver Radio experienced an operating loss, but interest income and profit from selling older equipment offset the loss. Net income for the year was positive. The 1982 operating loss was larger and was not offset by nonoperating income. Financial statements for Culver Radio for 1981 and 1982 appear in Exhibits I and 2. To use idle capacity. Turner decided in 1982 to stress exports. A few foreign firms had purchased Culver's gate openers for use in their home country and had been pleased with the result. Culver Radio itself, however, had never solicited a foreign order. After discussion with the U.S. Department of Commerce International Marketing Center in Los Angeles, Turner contacted Klaus Pelzer, an industrial radio distributor in Karlsruhe, Germany. Turner flew to Frankfurt to demonstrate the Culver industrial model to Pelzer, and by Christmas of 1982 Pelzer indicated an interest in becoming the German distributor if costs seemed reasonable. On February 1. 1983, Turner offered to sell Pelzer a shipment of radios and gate openers INTL HNAME. CATE NIAN'NInstructions Chart of Accounts General Journal
