There are 10 potential entrants into the market for tomatoes. All tomato growers are identical. They face a fixed cost of 500 if they choose to enter the market and then have a marginal cost of 10 per bushel of tomatoes produced. Those who enter the market produce a homogeneous tomato with demand P = 150 2Q, where Q is the number of bushels. The entering firms compete according to Cournot competition. Before choosing quantities firms sequentially announce whether they are entering and pay their fixed cost if entering.

1. Suppose N firms enter the market. Since this is a symmetric Cournot model, we've shown earlier in the class that in Nash Equilibrium each firm will produce, qN = (1/(N + 1))*((A c)/B) . So for this model, qN = 1/(N + 1) *(150 10)/2 = 70/(N + 1) . Given this, what is the price of tomatoes and the total quantity of tomatoes produced as a function of N? 2. What is the profit of the entering firms as a function of N? 3. What is consumer surplus as a function of N? 4. In a free entry equilibrium, how many firms will enter the market? 5. What is the profit of the first firm to announce it will enter the market? 6. Suppose a social planner were to choose the number of firms to enter the market to maximize total welfare, how many firms would enter?

2. Use the geometric series formula to express the present value of payments through p, T and rm, where I'm is the monthly interest rate. Plug in the numeric value for p, 7 and put this formula into cell B1. Have the formula refer to the interest rate from cell A1. Select B1:B100 and press CTRL+D. This will copy the formula and generate a column of present values that correspond to different monthly interest rate. interest rate from a row whose cell B value corresponds most closely to S. 3. Convert the monthly interest rate that you found on step 2 into annual using the compounding formula..

a) Calculate a monthly payment on the following mortgage. Annual interest rate is r = 0.06, mortgage term is 30 years, loan size S = 200,0 in months, then apply the formula). b) Jill would like to buy a car that costs S=20,000. The dealer offers her a 60-month loan with 0 down and a monthly payment p = 421. Calculate the annual interest rate on this loan using Excel. Take the following steps: 1. Generate a column of 40 monthly interest rates, with r = {0.001,0.002,...,0.040), say column A, starting with Al. 2. Use the geometric series formula to express the present value of payments through p, T and rm, where I'm is the monthly interest rate. Plug in the numeric value for p, 7 and put this formula into cell B1. Have the formula refer to the interest rate from cell A1. Select B1:B100 and press CTRL+D. This will copy the formula and generate a column of present values that correspond to different monthly interest rate. Pick an interest rate from a row whose cell B value corresponds most closely to S. 3. Convert the monthly interest rate that you found on step 2 into annual using the compounding formula..

A measure of how well the returns of two risky assets move together is the: a) Range. b) Covariance. c) Semi-variance. d) Standard deviation. 172. A portfolio manager adds a new stock to a portfolio. The stock has the same standard deviation as the existing portfolio but a correlation coefficient with the existing portfolio that is less than + 1. What effect will adding the new stock have on the standard deviation of the revised portfolio? a) The standard deviation will increase b) The standard deviation will decrease c) The standard deviation will be unaffected d) Impossible to say without more information 173. An investor currently owns Brown Corp. stock and is thinking of adding either James Corp. or Beta Corp. stock to his holdings. All three stocks offer the same expected return and same total risk. The correlation of returns between Brown stock and James stock is - 0.50 and the correlation between Brown stock and Beta stock is +.50. The risk of the portfolio would: a) Decline more if you bought Beta Co. b) Decline more if you bought James Co. c) Decrease if you bought James Co. but increase if you bought Beta Co.

address all questions her

. Which of the following statements is FALSE? a) Positive covariance means that asset returns move together. b) A zero covariance implies there is no relationship between two variables. c) If two assets have perfect negative correlation, it is impossible to reduce the portfolio's overall variance. d) The covariance is equal to the correlation coefficient times the standard deviation of the first stock times the standard deviation of the second stock. 165. What is the portfolio's standard deviation if you put 25% of your money into stock A which has a standard deviation of returns of 15% and the rest into stock B which has a standard deviation of returns of 10%? The correlation coefficient between the returns of the two stocks is +.75. a) 11.25% b) 10.60% c) 12.40% d) 15.00% 166. What is the standard deviation of the portfolio in the question above, if the correlation coefficient is now -.75? a) 2.8%. b) 4.2%. c) 5.3%. d) 10.6%.

Country A has an industry M using the production function Y = K0.3 0.7, where Y is the output of industry M, K is the capital input and L is the labor input. Find the marginal product of labor (MPL) and the marginal product of capital (MPK). Show diminishing MPL and MPK. 2. Country A has an industry N using the production function Y = K0.6L0.4, where Y is the output of industry N, K is the capital input and L is the labor input. Find the marginal rate of technical substitution (MRTS) between capital and labor. State the cost minimization condition (with the MRTS and the price of capital (r) and the price of labor (w)). 3. Which industry is labor intensive, industry M from Q1 or industry N from Q2? (Hint: Use the cost minimization condition in both industries.) 4. A US firm is considering whether to locate its new plant in China or in the US. This firm's production function is q = L 0.5L05 where q is the output, and L, and Lu, are the number of skilled labor hours and unskilled labor hours. Suppose that the hourly wage rates are w; = 15 and w = 5 in China and w, = 20 and w, 10 in the US (all in USDs). Find L., Lu, and the cost of producing q = 100 in China and in the US. Assume that there is no transportation costs or tariffs, where should the firm locate its new plant? 5. The inverse demand curve of a firm is p = 100 - Q. The firm's cost curve is C(Q) = 10+5Q. What is the profit-maximizing solution to Q? How does your answer change if C(Q) = 100+5Q?

1.Consider the following Solow model with production in intensive form:y = k2/5where depreciation (d)= 0.05, labour force growth ()= 0.02, savings rate (s)=0.25, and technological progress () =0. Find the steady state values of k, y, c and r. 2.Suppose a country grew at 8.4 % per year and that a recent growth accounting study showed the Solow residual accounted for only 1.2 % per year of this growth performance (this growth-accounting analysis used weights of 0.33 for labour and 0.67 for capital). a.The country's labour force grew by 2.6 % per year during this period. What can you conclude about the annual growth rate of the capital stock?b.What fraction of the overall 8.4 percent growth rate is attributable to capital investment?3.Given a production function , if , and : 4.a. Calculate the steady-state level of capital and output.5.b. Does the above production function exhibit constant returns to scale, or does it exhibit diminishing marginal returns? Explain, and define the difference between these two concepts.4.Consider a simple Solow model as developed by Jones in Chapter 5. Assume the country is at its steady state when it receives a one-time transfer of technology which causes it's A to increase (this is a one-time and permanent increase). Based on this information:a.Use the Solow diagram to analyze what happens to the economy over time.b.Draw a graph showing what happens to the country's output over time. What happens to output per person in the long-run?c.Draw a graphs showing what happens to the growth rate of output over-time. Explain.d.What do these results imply about the effect of technology transfer on economic growth?

0. Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout ratio be? a. 15% b. 20% c. 25% d. 30% e. 35%

. Brock Brothers wants to maintain its capital structure that consists of 30 percent debt and 70 percent equity. The company forecasts that its net income this year will be $1,000,000. The company follows a residual dividend policy and anticipates a dividend payout ratio of 40 percent. What is the size of the company's capital budget? a. $ 600,000 b. $ 857,143 c. $1,000,000 d. $1,428,571 e. $2,000,000 162. The following facts apply to your company: Target capital structure: 50% debt; 50% equity. EBIT: $200 million. Assets: $500 million. Tax rate: 40%. Cost of new and old debt: 8%. Based on the residual dividend policy, the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be? a. $ 43.2 b. $ 50.0 c. $ 64.8 d. $ 86.4 e. $108.0 163. Makeover Inc. believes that at its current stock price of $16.00 the firm is undervalued in the market. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase. The firm's current earnings are $44 million. If management's assumptions hold, what is the expected per-share market price after repurchase? a. $16.00 b. $17.26 c. $18.18 d. $20.00 e. $24.4

Growth and DevelopmentAssignment 2The due date for this assignment is Wednesday October 27.1. According to the Solow model, the steady state capital-labor ratiokis determined bythe equation:(n+)k=f(k).Letf(k)=Ak(Cobb-Douglas). The parameterrepresents capital's share of theGDP, so let=1/3.Sincerepresents the annual rate of depreciation, let=0.10.From the data in the textbook, the average population growth rate appears to ben=0.02and the average saving rate around=0.20.Using the equation above,find a value forAsuch that the steady state level of output is equal to one; i.e.,y=A(k)1/3=1.0.2. Now, withAdetermined above, compute different values foryby varying the parame-tersnand(over reasonable ranges) and report your results in a table.

.Suppose an investor has two assets whose standard deviation of returns are 30% and 40%. The assets are perfectly negatively correlated. What asset weights will eliminate all portfolio risk? a) 50% and 50%. b) 30% and 40%. c) 57% and 43%. d) Not enough information to answer the question. 168. Which of the following statements is FALSE? a) Potential benefits from diversification arise when correlation is less than + I. b) If the correlation coefficient were 0, a zero variance portfolio could be constructed. c) If the correlation coefficient were -1, a zero variance portfolio could be constructed. d) The lower the correlation coefficient the greater the potential benefits from diversification. 169. The correlation between assets D and E is +.50. Asset D has a standard deviation of 40% and asset E has a standard deviation of 60%. What is the standard deviation of the portfolio if 40% is invested in asset D? a) 21% b) 46% c) 52% d) 60% 170. An investor puts 60% of his money into T -Bills that earn 5% and 40% into risky stocks which are expected to earn 10% and have a standard deviation of 15%. What is the expected return and the standard deviation of the portfolio? a) 4%; 3%. b) 5%; 7%. c) 6%; 7%. d) 7%; 6%

Consider a closed economy described by the following equations

Y = 5000

G=1000

T = 1000 C=100+0.75(Y-T)

T = 1000-10r

where Y is total income (GDP), G is the government expenditure, T are the taxes, C is aggregate consumption that depends on disposable income (Y-T) and I is the investment function that we assume to be negatively related with the interest rate (r).

a) From this economy, calculate private, public and national saving;

b) Use the income expenditure identity to calculate the equilibrium

interest rate;

c) Now suppose that G increases to 1500, everything else constant. Calculate the

private, public and national saving in this case;

d) Find the new equilibrium interest rate. Comment your result;

1. Which of the following does Macroeconomics not study? a. Unemployment b. Economy-wide economic growth c. Regulations on unions and businesses d. Inflation 2. Using a Circular-Flow diagram, how is GDP determined? a. Determining total income of households and adding to total revenue of firms b. Determining total revenue of firms and subtracting total expenditure of households c. Determining total income of households and adding total expenditure of households d. Determining total revenue of firms, total household income or total household expenditure

How does microeconomics relate to macroeconomics? (3 points) 70. Recent decades have seen a trend toward globalization, which means that buying and selling in markets have crossed national borders to an increasing extent. As a result, firms and workers from different countries are increasingly interconnected. Globalization has occurred for a number of reasons. List three reasons and briefly describe their effect contributing toward globalization. (5 points) 71. The formal study of economics began when Adam Smith (1723-1790) published his famous book The Wealth of Nations in 1776. In the first chapter of The Wealth of Nations, Smith introduces the idea of the division of labor. Define "division of labor" and illustrate with an example.

Computing the Steady State: Consider the Solow model discussed in class where output is given by Y = At KL and capital accumulation is given by: AKt = Kt+1-Kt = sYt-8Kt where s is the fixed constant savings rate and 8 is the depreciation rate. (a) Suppose At grows at 1%, a = 1/2, Kt grows at 4% and Lt grows at 2% per year. What is the growth rate of Y? About how many years will it take for income to double? (b) Does the production function display constant returns to scale? (c) Solve for the steady state level of capital (hint: set K = Kt+1= K*). How does the steady state level depend on the savings rate s and the depreciation rate of capital 8. (d) If a = 1, s = 0.05, 8 = 0.1, A = 4, and L = 3.5, what is the steady state level of capital? (e) If there was a sudden increase in technology A in the economy, what would happen to the steady state level of capital in the economy? How would wages evolve along the transition to the new steady state?

Consider the Solow model we discussed in class. The expression for total output and the dynamics of capital per worker are given by the following expressions: Y = AK L where A is the exogenous Solow residual, y is output per worker, and is the depreciation rate of capital. Ak = sy - 8k (a) Using the information given above, find the fundamental Solow equation. Find an expression for steady state capital per worker. (b) What happens to steady state capital if depreciation rate goes up? (c) Suppose that this economy consists of two types of households: laborers and capitalists. Capitalists own all the capital stock K and are paid a rental rate equal to the marginal product of capital. Find an expression for their share of national income. (d) Assume that laborers save none of their income. If capitalists save 30% of their income, the parameter a = 0.3, and the parameter = 0.1, what is the aggregate saving rate s? Will income inequality between capitalists and laborers worsen over time?

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be and growth of output per person will be A) lower; lower B) lower; the same as it was before C) higher; higher than it was before D) higher; lower 3. In a steady-state economy with a saving rate s, population growth n, depreciation rate 8, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f (k*)), is A) sf (k)/(8+n+g). B) s/((f(k))(8 +n+g)). C) f(k)/((s)(8+n+g)). D) (s-f(k))/(8+n+g).

Annuity pricing a) An annuity is a financial instrument that pays out a constant amount of income per period for as long as the annuitant (i.e. annuity purchaser) is alive. Let P be the expected present value of annuity payments. Let a denote annuity income payment per period, m denote the probability of dying by next period (a.k.a mortality rate) and r denote the interest rate. Use the recursive asset pricing formula a + EP' 1+r P= to show that P = a r+m b) Suppose that an elderly annuitant has 500,000 in wealth and uses this wealth to purchase an annuity. Calculate the annual payment that the annuitant should expect if r = 0.05 and m = 0.03 per year. Explain how your answer is related to equilibrium economic profit of a financial institution that issued the annuity. (ii) Life insurance premium A life insurance policy is a financial contract that collects a premium of p per period from the insured and pays out a lump sum benefit B upon the death of the insured. Let m denote the mortality rate, r denote the interest rate and V denote the expected present value of economic profits of the insurance company on this policy. Use the recursive asset pricing formula v= P+ EV' 1+r to express equilibrium life insurance premium, p, through exogenous variables. Explain your answer and show all work. (iii) Loan calculators Suppose that loan of size S is repaid over T periods with equal per-period payments p and interest rate on the loan r. Initial loan size has to be equal to the present value of the payments: S=1+r+ (1+r) + ++ P (1+r) a) Calculate a monthly payment on the following mortgage. Annual interest rate is r = 0.06, mortgage term is 30 years, loan size S = 200,000. (Hint: since you are asked about the monthly payment, present value should be discounted at a monthly frequency. Start with figuring out the monthly interest rate and the mortgage term expressed in months, then apply the formula). b) Jill would like to buy a car that costs S=20,000. The dealer offers her a 60-month loan with 0 down and a monthly payment p = 421. Calculate the annual interest rate on this loan using Excel. Take the following steps: 1. Generate a column of 40 monthly interest rates, with r = {0.001,0.002,...,0.040), say column A, starting with Al. 2. Use the geometric series formula to express the present value of payments through p, T and rm, where I'm is the monthly interest rate. Plug in the numeric value for p, 7 and put this formula into cell B1. Have the formula refer to the interest rate from cell A1. Select B1:B100 and press CTRL+D. This will copy the formula and generate a column of present values that correspond to different monthly interest rate. Pick an interest rate from a row whose cell B value corresponds most closely to S. 3. Convert the monthly interest rate that you found on step 2 into annual using the compounding formula..