Question: Explain how the premium and discount are

> The ACME Corporation determines that at current prices the demand for its computer chips has a price elasticity of –2 in the short run, while the price elasticity for its disk drives is –1. a.If the corporation decides to raise the price of both product

> Do the following functions exhibit increasing, constant, or decreasing returns to scale?What happens to the marginal product of each individual factor as that factor is increased and the other factor held constant?

> The marginal product of labor in the production of computer chips is 50 chips per hour.The marginal rate of technical substitution of hours of labor for hours of machine capital is 1/4.What is the marginal product of capital?

> Distinguish between economies of scale and economies of scope.Why can one be present without the other?

> Suppose the supply curve for a good is completely inelastic.If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result?Explain.

> Can an isoquant ever slope upward?Explain.

> Debra usually buys a soft drink when she goes to a movie theater, where she has a choice of three sizes:the 8-ounce drink costs $1.50, the 12-ounce drink, $2.00, and the 16-ounce drink $2.25.Describe the budget constraint that Debra faces when deciding h

> Suppose that labor is the only variable input to the production process.If the marginal cost of production is diminishing as more units of output are produced, what can you say about the marginal product of labor (the variable input)?

> What assumptions are necessary for a market to be perfectly competitive?In light of what you have learned in this chapter, why is each of these assumptions important?

> Suppose that Jones and Smith have each decided to allocate $1000 per year to an entertainment budget in the form of hockey games or rock concerts.They both like hockey games and rock concerts and will choose to consume positive quantities of both goods.H

> The table below shows the retail price and sales for instant coffee and roasted coffee for 1997 and 1998. a.Using these data alone, estimate the short-run price elasticity of demand for roasted coffee.Derive a linear demand curve for roasted coffee. b.N

> How does the diversification of an investor’s portfolio avoid risk?

> A firm has a production process in which the inputs to production are perfectly substitutable in the long run.Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary?Discuss.

> It is often said that a good theory is one that can be refuted by an empirical, dataoriented study.Explain why a theory that cannot be evaluated empirically is not a good theory.

> A firm produces a product in a competitive industry and has a total cost function C = 50 + 4q + 2q2 and a marginal cost function MC = 4 + 4q.At the given market price of $20, the firm is producing 5 units of output.Is the firm maximizing its profit?What

> Suppose that Natasha’s utility function is given by u(I)= 10I , where I represents annual income in thousands of dollars. a.Is Natasha risk loving, risk neutral, or risk averse?Explain. b.Suppose that Natasha is currently earning an income of $40,000 (I

> YouareaninsuranceagentwhomustwriteapolicyforanewclientnamedSam.Hiscompany,SocietyforCreativeAlternativestoMayonnaise(SCAM),isworkingonalow-fat,low-cholesterolmayonnaisesubstituteforthesandwich-condimentindustry.Thesandwichindustrywillpaytopdollartothefir

> Isoquants can be convex, linear, or L-shaped.What does each of these shapes tell you about the nature of the production function?What does each of these shapes tell you about the MRTS?

> The production function for a product is given by q = 100KL.If the price of capital is $120 per day and the price of labor $30 per day, what is the minimum cost of producing 1000 units of output?

> Suppose a chair manufacturer finds that the marginal rate of technical substitution of capital for labor in her production process is substantially greater than the ratio of the rental rate on machinery to the wage rate for assembly-line labor.How should

> Because industry X is characterized by perfect competition, every firm in the industry is earning zero economic profit.If the product price falls, no firms can survive.Do you agree or disagree?Discuss.

> Richard is deciding whether to buy a state lottery ticket.Each ticket costs $1, and the probability of winning payoffs is given as follows: Probabilty…………Return 0.50…………..$0.00 0.25…………..$1.00 0.20……..……$2.00 0.05…………..$7.50 a. What is the expect

> Show that the two utility functions given below generate the identical demand functions for goods X and Y: a.U(X, Y) = log(X) + log(Y) b.U(X, Y) = (XY)0.5

> You run a small business and would like to predict what will happen to the quantity demanded for your product if you raise your price.While you do not know the exact demand curve for your product, you do know that in the first year you charged $45 and so

> Which of the following two statements involves positive economic analysis and which normative?How do the two kinds of analysis differ? a. Gasoline rationing (allocating to each individual a maximum amount of gasoline that can be purchased each year) is

> Anne has a job that requires her to travel three out of every four weeks.She has an annual travel budget and can travel either by train or by plane.The airline on which she typically flies has a frequent-traveler program that reduces the cost of her tick

> What is the difference between ordinal utility and cardinal utility?Explain why the assumption of cardinal utility is not needed in order to rank consumer choices.

> Which of the following utility functions are consistent with convex indifference curves and which are not? a. U(X, Y) = 2X + 5Y b.U(X, Y) = (XY)0.5 c.U(X, Y) = Min(X, Y), where Min is the minimum of the two values of X and Y.

> Please explain whether the following statements are true or false. a.If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive. b. A firm that has positive accounting profit does not necessari

> The rent control agency of New York City has found that aggregate demand is QD = 160 – 8P.Quantity is measured in tens of thousands of apartments.Price, the average monthly rental rate, is measured in hundreds of dollars.The agency also noted that the in

> In 1996, Congress raised the minimum wage from $4.25 per hour to $5.15 per hour, and then raised it again in 2007.Some people suggested that a government subsidy could help employers finance the higher wage.This exercise examines the economics of a minim

> What economic forces explain why the real price of eggs has fallen while the real price of a college education has increased?How have these changes affected consumer choices?

> Maurice has the following utility function: U(X,Y)=20X +80Y − X2 −2Y2,where X is his consumption of CDs, with a price of $1, and Y is his consumption of movie videos, with a rental price of $2.He plans to spend $41 on both forms of entertainment.Determin

> An individual sets aside a certain amount of his income per month to spend on his two hobbies, collecting wine and collecting books.Given the information below, illustrate both the price-consumption curve associated with changes in the price of wine and

> About 100 million pounds of jelly beans are consumed in the United States each year, and the price has been about 50 cents per pound.However, jelly bean producers feel that their incomes are too low and have convinced the government that price supports a

> Sharon has the following utility function: where X is her consumption of candy bars, with price PX = $1, and Y is her consumption of espressos, with PY = $3. a.Derive Sharon’s demand for candy bars and espressos. b. Assume that her inc

> George has $5000 to invest in a mutual fund.The expected return on mutual fund A is 15 percent and the expected return on mutual fund B is 10 percent.Should George pick mutual fund A or fund B?

> Assume that a utility function is given by Min(X, Y), as in Exercise 1(c).What is the Slutsky equation that decomposes the change in the demand for X in response to a change in its price?What is the income effect?What is the substitution effect?

> Assume that the marginal cost of production is greater than the average variable cost.Can you determine whether the average variable cost is increasing or decreasing?Explain.

> Explain the difference between each of the following terms: a.a price consumption curve and a demand curve b.an individual demand curve and a market demand curve c.an Engel curve and a demand curve d.an income effect and a substitution effect

> Explain the difference between a positive and a negative network externality and give an example of each.

> Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: a.Calculate the price elasticity of demand when the price is $80 and when the price is $100. b.Calculate the price elasticit

> Currently, the social security payroll tax in the United States is evenly divided between employers and employees.Employers must pay the government a tax of 6.2 percent of the wages they pay, and employees must pay 6.2 percent of the wages they receive.S

> Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the September 2013 Swiss franc futures contract. Exhibit 7.3: CME Group Currency Futures Contract Quotations EXHIBIT 7.3 Оpen High Settle Open interest Low Change

> What could be the reason for the negative synergistic gains for British acquisitions of U.S. firms?

> Why do you think the host country tends to resist cross-border acquisitions rather than greenfield investments?

> How would you explain the fact that China emerged as one of the most important recipients of FDI in recent years?

> On the Tokyo Stock Exchange, Honda Motor Company stock closed at ¥3,945 pershare on Thursday, April 11, 2013. Honda trades as an ADR on the NYSE. Oneunderlying Honda share equals one ADR. On April 11, 2013, the ¥/$ exchangerate was ¥99.8270/$1.00. a. At

> There are three production stages required before a pair of skis produced by FjordFabrication can be sold at retail for NOK2,300. Fill in the following table to showthe value added at each stage in the production process and the incremental andtotal VAT.

> Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings, anda major currency devaluation in December 1994, followed by the decision to freely floatthe peso. These events also brought about a severe recession and higher unempl

> Affiliate A sells 5,000 units to Affiliate B per year. The marginal income tax ratefor Affiliate A is 25 percent and the marginal income tax rate for Affiliate B is40 percent. Additionally, Affiliate B pays a tax-deductible tariff of 5 percent onimported

> Since NAFTA was established, many Asian firms, especially those from Japan and Korea, have made extensive investments in Mexico. Why do you think these Asian firms decided to build production facilities in Mexico?

> Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France willbe billed €20 million payable in one year. The current spot exchange rate is $1.05/€and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent

> Shrewsbury Herbal Products, located in central England close to the Welsh border, isan old-line producer of herbal teas, seasonings, and medicines. Its products are marketedall over the United Kingdom and in many parts of continental Europe as well. Shre

> Japanese MNCs, such as Toyota, Toshiba, and Matsushita, made extensive investments in Southeast Asian countries like Thailand, Malaysia, and Indonesia. In your opinion, what forces are driving Japanese investments in this region?

> What is a structured investment vehicle and what effect did they have on the credit crunch?

> Recently, many foreign firms from both developed and developing countries acquired high-tech U.S. firms. What might have motivated these firms to acquire U.S. firms?

> Briefly discuss some variants of the basic interest rate and currency swaps diagrammedin the chapter.

> A company based in the United Kingdom has an Italian subsidiary. The subsidiarygenerates €25,000,000 a year, received in equivalent semiannual installments of€12,500,000. The British company wishes to convert the euro cash flows to poundstwice a year. It

> Daimler, a German carmaker, acquired Chrysler, the third largest U.S. automaker,for $40.5 billion in 1998. But after years of declining profit and labor problems,Daimler sold off Chrysler to the U.S. private equity firm Cerberus for $7.4 billionin 2007.

> In the Modigliani-Miller equation, why is the market value of the levered firm greater than the market value of an equivalent unlevered firm?

> What problems can enter into the capital budgeting analysis if project debt is evaluated instead of the borrowing capacity created by the project?

> Suppose a Spanish MNC has a mirror-image situation and needs $2,900,000 tofinance a capital expenditure of one of its U.S. subsidiaries. It finds that it mustpay a 9 percent fixed rate in the United States for dollars, whereas it can borroweuros at 6 per

> Discuss the implications of the deviations from purchasing power parity for countries’competitive positions in the world market.

> What makes the APV capital budgeting framework useful for analyzing foreign capital expenditures?

> Assume a currency swap in which two counterparties of comparable credit riskeach borrow at the best rate available, yet the nominal rate of one counterpartyis higher than the other. After the initial principal exchange, is the counterpartythat is require

> Discuss what is meant by the incremental cash flows of a capital project.

> Define the concept of a real option. Discuss some of the various real options a firm can be confronted with when investing in real projects.

> How did the credit crunch become a global financial crisis?

> How might a MNC use transfer pricing strategies? How do import duties affect transfer pricing policies?

> Discuss the difference between performing the capital budgeting analysis from the parent firm’s perspective as opposed to the subsidiary’s perspective.

> What is the intuition of discounting the various cash flows in the APV model at specific discount rates?

> What is the nature of a concessionary loan and how is it handled in the APV model?

> Discuss the different ways political events in a host country may affect local operations of a MNC.

> A U.S. company needs to raise €50,000,000. It plans to raise this money by issuingdollar-denominated bonds and using a currency swap to convert the dollars toeuros. The company expects interest rates in both the United States and the eurozone to fall. a.

> Give a full definition of arbitrage.

> Once capital markets are integrated, it is difficult for a country to maintain a fixedexchange rate. Explain why this may be so.

> Assume that the Japanese yen is trading at a spot price of 92.04 cents per 100 yen.Further assume that the premium of an American call (put) option with a strikingprice of 93 is 2.10 (2.20) cents. Calculate the intrinsic value and the time value ofthe ca

> Relate the concept of lost sales to the definition of incremental cash flows.

> Discuss the nature of the equation sequence, Equations 18.2a to 18.2f. In Equation (18.2a) s In Equation (18.2f) CF, = (R, – OC, – D, - 1)(1 - 7) + D, + IĶ(1 – 7) %3D = OCF(1 - 7) + TD, = nominal after-tax incremental cash flow for year t

> What is the intuition behind the NPV capital budgeting framework?

> Discuss the regulatory and macroeconomic factors that contributed to the creditcrunch of 2007–2008.

> Suppose that one year after the inception of the currency swap betweenCentralia and the Spanish MNC, the U.S. dollar fixed rate has fallen from8 to 6 percent and the euro zone fixed rate for euros has fallen from 6 to5.5 percent. In both dollars and euro

> Why is capital budgeting analysis so important to the firm?

> Discuss the conditions under which the capital expenditure of a foreign subsidiary might have a positive NPV in local currency terms but be unprofitable from the parent firm’s perspective.

> You plan to visit Geneva, Switzerland, in three months to attend an internationalbusiness conference. You expect to incur a total cost of SF5,000 for lodging,meals, and transportation during your stay. As of today, the spot exchange rateis $0.60/SF and t

> The current spot exchange rate is HUF250/$1.00. Long-run inflation in Hungaryis estimated at 10 percent annually and 3 percent in the United States. If PPP isexpected to hold between the two countries, what spot exchange rate should oneforecast five year

> The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equitycapital is 12 percent and its before-tax borrowing rate is 8 percent. Given a marginaltax rate of 35 percent, calculate (a) the weighted-average cost of capital, and (b) the

> Explain and compare forward versus backward internalization.

> Under what conditions will the foreign subsidiary’s financial structure become relevant?

> What methods do taxing authorities use to eliminate or mitigate the evil of double taxation?

> Derive and explain the monetary approach to exchange rate determination.

> Suppose that in the case application in the chapter the APV for Centralia had been2$60,000. How large would the after-tax terminal value of the project need to bebefore the APV would be positive and Centralia would accept the project?

> In an integrated world financial market, a financial crisis in a country can bequickly transmitted to other countries, causing a global crisis. What kind of measureswould you propose to prevent the recurrence of an Asia-type crisis?

> Discuss how the advent of the euro would affect international diversification strategies.

> Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditurein South Africa. The initial cost of the project is ZAR10,000. The annual cashflows over the five-year economic life of the project in ZAR are estimated to be3,000, 4,000, 5,

> IBM purchased computer chips from NEC, a Japanese electronics concern, andwas billed ¥250 million payable in three months. Currently, the spot exchangerate is ¥105/$ and the three-month forward rate is ¥100/$. The three-month moneymarket interest rate is

> Zeda, Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 15,000,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars

> The Alpha Company plans to establish a subsidiary in Hungary to manufactureand sell fashion wristwatches. Alpha has total assets of $70 million, of which$45 million is equity financed. The remainder is financed with debt. Alpha consideredits current capi

> With regard to the Centralia case application in the chapter, how would the APV change if: a. The forecast of (dand/or (f are incorrect? b. Deprecation cash flows are discounted at Kudinstead of id? c. The host country did not provide the concessionary l