Q1. Assume that an investor is risk-neutral (i.e. suppose that an investor always chooses the investment with superior expected rate of arrival even if it is riskier). If the yield on 1-year marketable CD's is 6% while the yield on 2-year marketable CD's is 7% and this investor purchased the 1year T-bill, what must (s)he expect to happen to short term interest rates over the coming year?
Q2. The price elasticity of demand for the Redberry IV cellular phone is - 2.5. The average wholesale (invoice) cost for the Redberry IV cellular phone is $280 and the marginal selling cost per unit is $150. What would be the profit maximizing price for the manufacturer of this cellophane?