1. A bond pays $1,000 at the end of each year for 5 years plus an additional $5,000 when the bond matures at the end of 5 years. What is the most you would be willing to pay for this bond if your opportunity cost of capital is 5%?
2. Suppose the own price elasticity of demand for good X is -3, its income elasticity is 2, and the cross price elasticity of demand between good X and Y is -5. Determine how much the consumption of this good will change if: a) The price of good X increases by 5% b)
The price of good Y increases by 12%
3. An accountant for a car rental company was recently asked to report the firm's cost of producing various levels of output. The accountant knows that the most recent estimate available of the firm's cost function is C(Q) = 100 + 10Q + Q2, where costs are measured in thousands of hours rented:
a) What is the average fixed cost of producing 2 units of output?
b) What is the average total cost of producing 2 units of output?
c) What is the marginal cost of producing 2 units of output?
6. Provide an intuitive explanation for why a "buy one, get one free" deal is not the same as a "half price" sale