Problem: 1. Define scarcity and Opportunity cost.
(a) Scarcity is the fundamental economic problem of having seemingly unlimited human needs and wants, in a world of limited resources. Resources are scarce we must decide what we want to consume and what we want to give up.
(b) Opportunity cost is the cost related to the next-best choice available to someone who has picked among several mutually exclusive choices. For example if I spend 1 dollar on a chocolate bar, it means I cannot spend that 1 dollar on some alternative like a bottle of Coke or a lottery ticket.
(c) How are these economic concepts related? Scarcity is limitedness which leads to choice making whereby one good or service is chosen which leads to opportunity cost. The alternative foregone is opportunity cost. Opportunity cost is when you forego or give up one thing that you want to get something else that you believe you want even more.
(d) What role do they play in the making of managerial decisions? need help with this solution
Problem 2. A company has two million shares outstanding. It paid a dividend of $2 during the past year, and expects that dividends will grow at 6 percent annually in the future. Stockholders require a rate of return of 13 percent. What would you expect the price of each share to be today, and what is the value of the company's common stock?
Problem 3: Suppose a firm has the following demand equation:
Q = 1,000 - 3,000P + 10A,
where Q = quantity demanded
P = product price (in dollars)
A = advertising expenditures (in dollars)
Assume for the questions below that P = $3 and A = $2,000
a. Suppose the firm dropped the price to $2.50. Would this be beneficial? Explain. Illustrate your answer with the use of a demand schedule.
b. Suppose the firm raised the price to $4.00 while increasing the advertising expenditures by $100. Would this be beneficial? Explain. Illustrate your answer with the demand schedule.
Problem 4:
A bookstore opens across the street from the University Book Store (UBS). The new store carries the same textbooks but offers a price 30 % lower than UBS. If the cross-elasticity is estimated to be 1.5, and UBS does not respond to its competition, how much of its sales is it going to lose?