Delta Software earned $10 million this year. Suppose the growth rate of Delta's profits and the interest rate are both constant and Delta will be in business forever. Determine the value of Delta Software when:
a. The interest rate is 10 percent and profits grow by 4 percent per year.
b. The interest rate is 10 percent and profits grow by 0 percent per year.
c. The interest rate is 10 percent and profits decline by 4 percent per year.
d. The interest rate is 10 percent and profits grow by 12 percent per year. (This part of the question is tricky.)
AMS recently instituted an in-house recycling program. The benefits of this program include not only the benefits to the environment of recycling but also the goodwill generated by AMS's leadership in this area. The costs of recycling include all of the energy, labor, and space required to do the recycling. Suppose these benefits and costs are given by B(Q) = 100Q - 2Q2 and C(Q) = 2Q. (Note that MB = 100 - 4Q, and MC = 2.)
a. What level of Q maximizes the total benefits of recycling?
b. What level of Q minimizes the total costs of recycling?
c. What level of Q maximizes the net benefits of recycling?
d. What level of recycling is optimal? Why?
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