1) You’ve recently learned that the company where you work is being sold for $500,000. The company’s income statement indicates current profits of $25,000, which have yet to be paid out as dividends. Assuming the company will remain a “going concern” indefinitely and that the interest rate will remain constant at 9 percent, at what constant rate does the owner believe that profits will grow?
2) From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers, who make $14 million in withdrawals from other banks’ ATM machines. On average, noncustomers earn a wage of $26 per hour and pay ATM fees of $3.25 per transaction. It is estimated that banks would be willing to maintain services for 6 million transactions at $1.50 per transaction, while noncustomers would attempt to conduct 22 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash.
ROUND YOUR ANSWER TO THE NEAREST PENNY (2 DECIMAL PLACES) a. Based on this information, what would be the nonpecuniary cost of legislation that would place a $1.50 cap on the fees banks can charge for noncustomer transactions? b. What would be the full economic price of this legislation?
3) Suppose the cross-price elasticity of demand between goods X and Y is 1. How much would the price of good Y have to change in order to change the consumption of good X by 40 percent?
4) Suppose X and Y are substitutes and demand for X is Q x d = α 0 + α X P X + α Y P Y + α M M + α H H. Then we know: (ONE OF THE FOLLOWING IS THE ANSWER) α X < 0. α X > 0. α Y < 0. α Y > 0. 5) Good X is an inferior good and its demand is given by Q x d = α 0 + α X P X + α Y P Y + α M M + α H H. Then we know that: (ONE OF THE FOLLOWING IS THE ANSWER) α X < 0. α X > 0. α M < 0. α M > 0.
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