Assignment: INSTRUCTIONS: Please list the steps you are taking to solve each problem and label clearly all diagrams (axes, curves, points of interest, etc.). Do not allocate too much time to any one question. Expect to spend 50% of your available time answering the essay questions. You may refer to your notes, the course website or other resources on the web. You MAY NOT collaborate with your classmates. You must submit your completed exam (one Word document plus one Excel spreadsheet) in the Assignments section of Canvas by 11:59pm Eastern time on March 28, 2017.
Good luck and enjoy!
1. (Monte Carlo analysis) You have been asked to advise a single location of Whole Foods Market on their bakery inventory order and pricing policy. The bakery currently orders 3, 000 loaves for delivery every morning. Each loaf costs Whole Foods $1 and is initially priced at $6. At noon, all unsold loaves are offered for sale at $3 or less. Any unsold loaves at the end of the day are composted with no benefit to the company. Assume that demand in the morning is uniformly distributed between 1, 000 to 5, 000 loaves. Afternoon demand is forecasted to be uniformly distributed in the following manner: the lower bound is given by 0.75 × (1200 - 300p) and the upper bound is given by 1.25 × (1200 - 300p) where p is the sale price offered on loaves in the afternoon ($3 or less).
(a) What is the number of loaves that the bakery should expect to sell, assuming that the afternoon price is $3?
(b) Assume that you change the daily order from 3, 000 loaves to the number of loaves you computed in (a). Construct a simulation of 1,000 trials to evaluate the distribution of profit, assuming the afternoon price is set at $3. What is average profit over your trials? What is the confidence interval within which profit is likely to fall 95% of the time?
(c) Graph the distribution of profit in your simulation. How does it differ from the uniform distribution?
(d) How many loaves would you recommend that the bakery orders daily to maximize expected profit? (Assume for now that the afternoon price is set at $3). Is this quantity equal to the number computed in (a)? If equal, why is it equal? If not, why not?
(e) Now assume that the daily order is equal to the number of loaves you computed in (a)? What sale price below $3 would you set for the unsold loaves in the afternoon to maximize expected profit? Should this sale price depend on the number of unsold loaves at noon? If yes, why? If not, why not?
(f) Now assume that the company's Food Waste Prevention program charges your bakery 50 cents for every unsold loaf that gets composted at the end of the day. How would you modify your response to part (e) to account for the food waste charge?
2. (Travel Cost) Jagten Moor is the only available fishing area in York County. It is owned by the county, which allows free access to fishing enthusiasts. Almost all fishing visitors to Jagten Moor come from the nine towns in the county. York County is considering leasing Jagten Moor for logging, which would require that it be closed to fishing visitors. Before approving the lease, the county executive would like to know the magnitude of annual benefits that fishing visitors would forgo if Jagten Moor were to be closed to the public. An analyst for the county has collected data for a travel cost study to estimate the benefits of fishing at Jagten Moor. On ten randomly selected days, he recorded the license plates of vehicles arriving at Jagten Moor. (As the fishing season is 100 days, he assumed that this would constitute a 10 percent sample.) With cooperation from the state motor vehicle department, he was able to find the town of residence of the owner of each vehicle. He also observed from the sample of vehicles that each vehicle on average carried 3.6 persons (2 adults). The following table summarizes the data he collected:
In order to translate the distance traveled into an estimate of the cost that fishing visitors faced in using Jagten Moor, the analyst made the following assumptions. First, the average operating cost of vehicles is $0.60 per mile. Second, the average speed on county highways is 50 miles per hour. Third, the opportunity cost to adults of travel time is 50 percent of their wage rate; it is zero for children. Fourth, adult fishing visitors have the average county wage rate of $15.00 per hour. The analyst has asked you to help him use this information to estimate the annual benefits accruing to Jagten Moor fishing visitors. Specifically, assist with the following tasks:
(a) Using the preceding information, calculate the estimated number of visitors during the fishing season from each of the nine towns. What is the total number of fishing visitors to Jagten Moor from all nine towns?
(b) Using the preceding information, calculate the estimated visit rate (VR) per 1,000 people residing in each of the nine towns.
(c) Using the preceding information, calculate the travel cost per person (TC) of a visit from each of the nine towns.
(d) For the nine observations, regress visit rate (VR) on travel cost (TC) and an intercept. You can use the Regression Tool in the Analysis Toolpak of Excel or another regression program of your choice. If you do not have regression software available, plot the points and fit a line by sight. Find the slope of the fitted line.
(e) Predict the reduction in the number of visitors from each town as price is increased by $5 increments until demand falls to zero.
(f) Estimate the area under the demand curve as the annual benefits to fishing visitors. PS5020 Midterm Examination Page 2 of 3.
3. Answer any TWO of the following three questions. DO NOT answer all questions. If you answer all questions, then ONLY the FIRST TWO answers will be graded. Please remember that quality counts for far more than quantity. Limit each essay to 750 words.
It is often useful to spend 15 minutes planning your essay and writing down an outline before you start writing. You should expect to spend a total of 2 hours on each essay. Please check your final essays for typos and awkward phrasing.
(a) Describe sensitivity analyses, expected value analyses and Monte Carlo analyses as three potential methods of addressing uncertainty in the parameters of cost-benefit analyses. What are advantages and disadvantages of these three methods? What is the value of information? Using a real-world example, qualitatively describe how you would compute the value of information.
(b) Read the attached article about the current budget proposal to eliminate funding for the Energy Star program. Outline the costs and benefits of the program. Be precise in establishing standing. List the different types of parties who stand to lose or gain and describe in qualitative terms their expected gains or losses. Discuss the varied goals of policy such as replication of voter preferences, efficiency, equity and sustainability in this context. Try to make educated guesses about the quantitative parameters of your analysis. Consider the impact on those without standing, such as shareholders in foreign companies as well as the distortionary impact of taxation. Choose a recommendation based on your judgement of the costs and benefits. It may be helpful for your planning to search for newspaper articles discussing the policy changes and EconLit database articles discussing the economics of energy efficiency subsidy programs.
(c) Read the attached article on the draft executive order to overhaul work-visa programs in the US. Outline the costs and benefits of a) requiring employers to attempt to fill positions with American workers before hiring foreigners on work permits and b) rationing permits
to the highest paid foreign workers. Be precise in establishing standing. List the different types of parties who stand to lose or gain and describe in qualitative terms their expected gains or losses. Discuss the varied goals of policy such as replication of voter preferences,
efficiency, equity and sustainability in this context. Try to make educated guesses about the quantitative parameters of your analysis. Consider the impact on sectors that rely on work permit labour. Choose a recommendation based on your judgement of the costs and
benefits. It may be helpful for your planning to search for newspaper articles discussing the policy changes and EconLit database articles discussing the economics of H1-B visa policy.
The book for above assignment is enclosed below:
Attachment:- 2230920_2_Work-Visa-Article.pdf