(1). Assume Nail Mania advertises in the local newspaper. Each day it advertises costs $100. Over the past several months, Nail Mania has conducted market research and developed the following information
Number of days advertised per week Number of customers per week
0 100
1 200
2 290
3 355
4 375
5 390
6 400
7 400
If the net revenue (payments less cost of goods sold) is $5, how many days of advertising should Nail Mania buy each week? Explain your answer.
(2) Which of the following is NOT an example of an externality? Explain why the other examples are externalities and why the one you selected is not.
- government tax imposed on smog
- noise from a barking dog
- the loss of an ocean view because of new construction
- improved property values when a rundown house is remodeled
- groundwater pollution from an industrial facility
(3). Joe's Barber Shop has a daily total cost function of
TC = 100+ 4Q + Q2
and the daily demand for his services is
Q = 50 - 2P
What is the profit maximizing price that Joe should charge for his services?
(4). Assume ZCorp has the following short run production function:
Q = 500X - 2X2
where X is the only variable input used by ZCorp to product its product, Q.
Because ZCorp sells its product in a perfectly competitive market, it can sell all the Q it produces for $25. The current market price for input X is $100. How many units of X will ZCorp buy?
(5). Monopoly Rinks is the only ice skating facility in Mapleville. The next closest rink is about 100 miles away. It has determined that its demand curve is
Q = 123 - 0.5P - 0.25 Pc + .01 Y
where Q is the quantity of seasonal passes sold, P is the price for seasonal pass, Pc is the average price for concession items, and Y is average per capital income in Mapleville.
The local economists estimate that Y is equal to $12,000 and Monopoly has set Pc at $10. If Monopoly's MC of serving another customer is equal to $1, what is the profit maximizing price for seasonal passes?
(6). If XYZ Corp. can undertake the following projects:
Project 1:
Required investment: $10 million
Expected rate of return: 12%
Project 2:
Required investment: $2 million
Expected rate of return: 15%
Project 3:
Required investment: $5 million
Expected rate of return: 10%
Project 4:
Required investment: $8 million
Expected rate of return: 17%
It can raise up to $10 million at a cost of capital of 10%
From $10 to $20 million at a cost of capital of 15%
Over $20 million, its cost of capital is 20%.
What is the amount of money (in millions) that will be raised and invested?