Timber sales has total costs of sh450, 000 and it is currently producing 5,000 units of wooden racks a month. It has examined its cost structure and has found that, of its variable costs, half vary in a linear relationship with output; the other variable costs increase by sh1 for every 1,000-unit increase in output. Fixed costs are sh100, 000, and these determine the capacity of 6,000 units. The market price is sh100.

(i) Determine the MC, AVC and ATC functions for the firm

(ii) If the output is 5000 units determine the amount of MC, AVC and ATC

(iii) Determine the current profit of the company.

The market demand and supply equations for a commodity are

Q_D = 50 - 10P and Q_S = 20 + 2.5P

(i) What is the equilibrium price and equilibrium quantity?

(ii) Suppose the government imposes a price ceiling on the commodity of $3.00 and demand increases to Q_D = 75 - 10P. What is the impact on the market of the government's action?

The market research department of Paradox Enterprises has determined that the demand for fingolds is Q = 1,000 - 5P + 05I - 50Pz, where P is the price of glibdibs, I is income, and Pzis the price of ballzacks. Suppose that P = $5, I = $20,000, and Pz= $15.

(i) Compute the price elasticity of demand for fingolds.

(ii) Is the firm maximizing its total revenue at P = $5. If not, what prices would it charge?

(iii) At P = $5, compute the income elasticity of demand for fingolds.

(iv) At P = $5, compute the cross-price elasticity of demand for fingolds.

Suppose that an unregulated electric utility is a government franchised,profit-maximizing monopoly. At the prevailing price of electricity,an empirical study indicates that the price elasticity of demand for electricity is -0.8. Something is wrong. What? Explain

Your CEO asks you to evaluate the impact of the following events that seem to be affecting the value of your organization.In the context of the shareholders wealth maximization model, how would each affect your organization?

(i) A new foreign competitor enters the market.

(ii) Strict pollution control requirements are implemented by the government.

(iii) Your previously non-union workforce votes to unionize.

Two investments have the following expected returns (net present value) and standard deviation of returns:

Project

Expected Returns

Standard Deviation

A

$50,000

$40,000

B

$250,000

$125,000

Which among the two projects is riskier and why? Explain their relationship.

A company has been offered a contract to supply private-Label food processors to a regional store chain. The investment required for this project is $1million.It is expected to produce annual net cash flows of $290,000 for a period of five years.The company's cost of capital is 12 percent.

(i) Should the company accept the contract under the circumstances?

(ii) The project is considered to be of average risk and the company subjectively considers a risk premium of 3 percent.

(iii) Is the project viable in the environment of risk?