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A, Horizontal ; economies of scale.
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The risk-return trade-off of leverage
In the preceding videos, you learned that using borrowed money to finance a real estate investment creates leverage, as it ...
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In the preceding videos, you learned that using borrowed money to finance a real estate investment creates leverage, as it enables investors to buy properties that cost more than the money currently available to them. Suppose you want to buy an investment property that costs $1 million and will provide a steady cash flow, but you only have $500,000. Would you find an equity joint-venture partner to provide the other $500,000, or would you take out a loan for the money you need?
Consider the following questions when formulating your discussion:
Would you feel comfortable sharing management and control with an equity partner?
Would you be content with the risk and return presented by the property asset itself, or would you want to pursue a higher return even though it will mean taking on more risk?
Would you be willing (and able) to give up a part of the cash flow of the property to prioritize servicing the loan?
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AB224 Phoenix Unit 10 Total Revenue & Marginal Revenue Microeconomics Exam
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4 homework question
Conceptual Questions
Answer the following questions in a few sentences:
1. Read the article “Rethinking GDP” by Dian ...
4 homework question
Conceptual Questions
Answer the following questions in a few sentences:
1. Read the article “Rethinking GDP” by Diane Coyle. Give three reasons why GDP is not a perfect
measure of well-being and explain why their omission is important.
2. Read the article “We’ve become addicted to the income stagnation story. It’s probably not true.”
Explain how the article shows an example of the impact of making different choices in adjusting
variables for inflation.
3. Read the article “Say’s Law: Supply creates its own demand.” What is Say’s Law? Explain why
Say’s Law won’t always work in a monetary economy.Analytical Questions 1. In each of the following scenarios, calculate the total increase in US GDP this year caused directly
by the given information
a. An individual purchases an old used car from their friend for $6,000. They buy a new engine
for the car for $1,000, replace the brakes for $500, and paint it for $200. They then sell the
car for $10,000. Assume all improvements were completed this year.
b. A computer manufacturer in the US buys parts for its computer from Japan. The cost of
these parts is $500. It produces and sells a computer for $700 using these parts.
c. A child is running a lemonade stand. They purchase 20 lemons for $3 each and 500 grams of
sugar for $0.01 per gram. Using these ingredients, they make and sell 50 cups of lemonade
for $2 each and at the end of the day they have 5 lemons and 100 grams of sugar remaining
(that they do not sell and eventually consume themselves).
d. A video game company prints 2 million copies of a game that sells for $60. It sells 1.8 million
of these this year and the remainder the following year.
e. A sandwich shop buys $1000 of ham, $500 of cheese, and $300 of bread. It also buys a new
meat slicer for $300. Using these, it produces and sells $2000 of sandwiches. There is no
ham or cheese remaining after production, but the meat slicer is still in perfect condition. 2. There are 800 consumers in an economy that each have the same utility function given by U(c, l) =
32c
1/2−(24−l)
2 where c is their consumption and l is the number of hours they spend for leisure. A
single firm serves the market with production function Y = 32L
1/2K1/2
. The firm cannot choose
its capital stock, which is fixed at K = 1600. You can assume the price level is equal to 1 so real
and nominal wages are equivalent.
a. Solve for an individual consumer’s labor supply as a function of the real wageb. What is the total supply of labor hours for the economy in one day as a function of the real
wage?
c. Solve for the firm’s labor demand as a function of the real wage
d. What is the equilibrium real wage and equilibrium total number of hours worked per day?
How many hours does each consumer work per day?
e. What is total output for the economy? What is consumption? (challenge: why isn’t the
consumption you calculated equal to output?)
f. The government wants to increase the equilibrium real wage, so it mandates a minimum
wage of $15 per hour. What happens to labor supply and demand? How many total hours
will be worked? What is total output?
g. Now the government gets rid of the minimum wage and tries a wage subsidy instead. For
every hour worked, they pay the consumer some benefit b. How large does b have to be
in order to reach $15/hr of total compensation (w + b)? (don’t forget that the equilibrium
wage will change with the subsidy) Now how many hours will be worked and what is total
output?
h. Bernie Sanders is worried that the wage subsidy is actually subsidizing the firm. The government passes a 100% tax paid by the firm for every dollar of benefit the firm’s employees
receive from the government (in other words, for every hour of labor the firm hires the worker,
it needs to pay the wage plus the benefit its workers receive). Solve for total compensation
received by the worker (you will not be able to solve for the wage and benefit separately,
solve for w + b). Does Sanders’s proposal help workers? Explain the intuition. 3. The manufacturing industry has a labor demand curve given by L
D
M = 1200 − 100w and the
service industry has a labor demand curve given by L
D
S = 400 − 20w. Total labor supply is given
by L
S = 400 (i.e. labor supply is perfectly inelastic - it doesn’t depend on the wage. Here assume
L is in units of workers, so there are 400 total workers)
a. Find the equilibrium wage and labor in each industry (remember the sum of labor in each
industry has to add up to total labor)
b. The manufacturing industry union renegotiates a wage of $11. If workers can freely move
between industries, what happens to wages and employment in each industry? (Hint: If
workers cannot find a job in manufacturing, they will look for a job in services)
c. Service workers complain about low wages, so the government mandates a $11 minimum
wage. What happens to employment in each industry? What is the unemployment rate?
d. Show what happened on a graph 4. Two consumers (call them A and B) have utility functions over consumption in period 1 and
consumption in period 2 given by
U(c1, c2) = ln(c1) + ln(c2)In period 1, consumer A receives income of y
A
1 = 80 and consumer B receives y
B
1 = 120. In
period 2, the endowments are reversed, consumer A gets y
A
2 = 120 and consumer B gets y
B
2 = 80 a. First assume consumers are not allowed to save (so they just consume their income each
period). Calculate utility for each consumer. b. Now let consumers save. They receive an interest rate r on their savings. Write out the
budget constraint for each consumer in each period and the combined two-period budget
constraint (as in the notes) c. Find the optimal consumption for each consumer in each period as a function of the interest
rate
d. If r=0.2, calculate how much each consumer wants to save (or borrow - if optimal saving is
negative) and consumption in each period. Is this allocation feasible? In other words, given
the amount of total income in the economy in each period, is it possible to consume as much
as this allocation would suggest?
e. Find the market clearing interest rate (the interest rate where total consumption adds to
total income in each period)
f. Now assume consumer B’s income in period 2 increases to y
B
2 = 100 (everything else stays
the same). Find the new equilibrium interest rate. Is it higher or lower than the interest
rate in part e? Explain the economic intuition of this result (hint: think about what has
happened to the relative scarcity of total income in each period and how that affects desired
saving by each consumer).
g. Now assume consumers discount consumption in period 2 relative to period 1 so that their
utility function becomes
U(c1, c2) = ln(c1) + β ln(c2)
Where β is a discount factor between 0 and 1. Keeping the values from question f, what is
the equilibrium interest rate if β = 0.9? Explain the economic intuition.
5 pages
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The risk-return trade-off of leverage
In the preceding videos, you learned that using borrowed money to finance a real estate investment creates leverage, as it ...
The risk-return trade-off of leverage
In the preceding videos, you learned that using borrowed money to finance a real estate investment creates leverage, as it enables investors to buy properties that cost more than the money currently available to them. Suppose you want to buy an investment property that costs $1 million and will provide a steady cash flow, but you only have $500,000. Would you find an equity joint-venture partner to provide the other $500,000, or would you take out a loan for the money you need?
Consider the following questions when formulating your discussion:
Would you feel comfortable sharing management and control with an equity partner?
Would you be content with the risk and return presented by the property asset itself, or would you want to pursue a higher return even though it will mean taking on more risk?
Would you be willing (and able) to give up a part of the cash flow of the property to prioritize servicing the loan?
What would the interest rate and terms of the loan be in relation to the cash flow yield rate and total return expectation for the property?
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AB224 Phoenix Unit 10 Total Revenue & Marginal Revenue Microeconomics Exam
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Cable, a typical utility based monopoly, provides cable service in a rural community. Table 1. shows the demand that Media Cable experiences at each ...
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1) Marginal AnalysisYou are the manager of GetMoney Inc. and you produce cardboard boxes.Suppose that you hired a consulta ...
GetMoney Inc Marginal Analysis Report
1) Marginal AnalysisYou are the manager of GetMoney Inc. and you produce cardboard boxes.Suppose that you hired a consultant for your company to estimate the demand foryour cardboard boxes. You collect data on the price and quantity of boxes sold andsend it to your consultant, who then estimates the inverse demand equation as P = 14– (1.5)*Q. Please also assume that you have a fixed cost of $2 and that the variablecost as estimated by your consultant is V(Q) = 4Q + 𝑄2.a) What is the quantity that maximizes profits based upon the above information?What are the corresponding maximum profits that you can earn? (Please usegraphs to support your answer.)b) At the quantity that maximizes net benefit, are marginal revenues positive,negative, or zero? At this quantity, would you recommend increasing productionin order to increase revenues? Why or why not. (Please use graphs to support youranswer).c) Are marginal benefits equal to zero at this quantity? Why or why not?22) Supply and Demand/Demand AnalysisSuppose that your analyst estimates the demand equation for good X as given below:𝑄𝑑𝑥=12−𝑃𝑥−2𝑃𝑦+1𝑃𝑧+𝑀Good X sells for $1 per unit, good Y sells for $2 per unit, good Z sells for $1 per unit, and consumer income is $4.a. Using the information provided by your analyst, please determine the demand equation. (Please use graphs to support your answer).b. Please calculate the own price elasticity of demand for good X. Is the demand for good X elastic, inelastic, or unit elastic? (Please indicate where on your graph of the demand equation from part a, your calculation of own-price elasticity lies.)c. If I increase the price of good X by 0.13%, what happens to revenues? (Please use graphs to support your answer.)II. Essays3) Supply and DemandFor this question, please find an article from a mainstream news source that discusses the effect of supply and demand shocks on prices in the market of a particular product and use graphs to support your answer. Please also discuss whether you think that the graphs and noted shocks are consistent with the discussion in the article regarding price effects.4) Elasticity of demand For this question, please find an article from a mainstream news source that covers the topic of elasticity of demand, which highlights the importance of elasticity of demand, prices, and revenues as it affects the determination of prices in the market of a particular product and use graphs to support your answer.
12 pages
Financial Management Case Study
One of the essential duties of a nurse leader is to manage personnel and personnel budgets. In this assignment, you will a ...
Financial Management Case Study
One of the essential duties of a nurse leader is to manage personnel and personnel budgets. In this assignment, you will assume the role of a nurse ...
4 homework question
Conceptual Questions
Answer the following questions in a few sentences:
1. Read the article “Rethinking GDP” by Dian ...
4 homework question
Conceptual Questions
Answer the following questions in a few sentences:
1. Read the article “Rethinking GDP” by Diane Coyle. Give three reasons why GDP is not a perfect
measure of well-being and explain why their omission is important.
2. Read the article “We’ve become addicted to the income stagnation story. It’s probably not true.”
Explain how the article shows an example of the impact of making different choices in adjusting
variables for inflation.
3. Read the article “Say’s Law: Supply creates its own demand.” What is Say’s Law? Explain why
Say’s Law won’t always work in a monetary economy.Analytical Questions 1. In each of the following scenarios, calculate the total increase in US GDP this year caused directly
by the given information
a. An individual purchases an old used car from their friend for $6,000. They buy a new engine
for the car for $1,000, replace the brakes for $500, and paint it for $200. They then sell the
car for $10,000. Assume all improvements were completed this year.
b. A computer manufacturer in the US buys parts for its computer from Japan. The cost of
these parts is $500. It produces and sells a computer for $700 using these parts.
c. A child is running a lemonade stand. They purchase 20 lemons for $3 each and 500 grams of
sugar for $0.01 per gram. Using these ingredients, they make and sell 50 cups of lemonade
for $2 each and at the end of the day they have 5 lemons and 100 grams of sugar remaining
(that they do not sell and eventually consume themselves).
d. A video game company prints 2 million copies of a game that sells for $60. It sells 1.8 million
of these this year and the remainder the following year.
e. A sandwich shop buys $1000 of ham, $500 of cheese, and $300 of bread. It also buys a new
meat slicer for $300. Using these, it produces and sells $2000 of sandwiches. There is no
ham or cheese remaining after production, but the meat slicer is still in perfect condition. 2. There are 800 consumers in an economy that each have the same utility function given by U(c, l) =
32c
1/2−(24−l)
2 where c is their consumption and l is the number of hours they spend for leisure. A
single firm serves the market with production function Y = 32L
1/2K1/2
. The firm cannot choose
its capital stock, which is fixed at K = 1600. You can assume the price level is equal to 1 so real
and nominal wages are equivalent.
a. Solve for an individual consumer’s labor supply as a function of the real wageb. What is the total supply of labor hours for the economy in one day as a function of the real
wage?
c. Solve for the firm’s labor demand as a function of the real wage
d. What is the equilibrium real wage and equilibrium total number of hours worked per day?
How many hours does each consumer work per day?
e. What is total output for the economy? What is consumption? (challenge: why isn’t the
consumption you calculated equal to output?)
f. The government wants to increase the equilibrium real wage, so it mandates a minimum
wage of $15 per hour. What happens to labor supply and demand? How many total hours
will be worked? What is total output?
g. Now the government gets rid of the minimum wage and tries a wage subsidy instead. For
every hour worked, they pay the consumer some benefit b. How large does b have to be
in order to reach $15/hr of total compensation (w + b)? (don’t forget that the equilibrium
wage will change with the subsidy) Now how many hours will be worked and what is total
output?
h. Bernie Sanders is worried that the wage subsidy is actually subsidizing the firm. The government passes a 100% tax paid by the firm for every dollar of benefit the firm’s employees
receive from the government (in other words, for every hour of labor the firm hires the worker,
it needs to pay the wage plus the benefit its workers receive). Solve for total compensation
received by the worker (you will not be able to solve for the wage and benefit separately,
solve for w + b). Does Sanders’s proposal help workers? Explain the intuition. 3. The manufacturing industry has a labor demand curve given by L
D
M = 1200 − 100w and the
service industry has a labor demand curve given by L
D
S = 400 − 20w. Total labor supply is given
by L
S = 400 (i.e. labor supply is perfectly inelastic - it doesn’t depend on the wage. Here assume
L is in units of workers, so there are 400 total workers)
a. Find the equilibrium wage and labor in each industry (remember the sum of labor in each
industry has to add up to total labor)
b. The manufacturing industry union renegotiates a wage of $11. If workers can freely move
between industries, what happens to wages and employment in each industry? (Hint: If
workers cannot find a job in manufacturing, they will look for a job in services)
c. Service workers complain about low wages, so the government mandates a $11 minimum
wage. What happens to employment in each industry? What is the unemployment rate?
d. Show what happened on a graph 4. Two consumers (call them A and B) have utility functions over consumption in period 1 and
consumption in period 2 given by
U(c1, c2) = ln(c1) + ln(c2)In period 1, consumer A receives income of y
A
1 = 80 and consumer B receives y
B
1 = 120. In
period 2, the endowments are reversed, consumer A gets y
A
2 = 120 and consumer B gets y
B
2 = 80 a. First assume consumers are not allowed to save (so they just consume their income each
period). Calculate utility for each consumer. b. Now let consumers save. They receive an interest rate r on their savings. Write out the
budget constraint for each consumer in each period and the combined two-period budget
constraint (as in the notes) c. Find the optimal consumption for each consumer in each period as a function of the interest
rate
d. If r=0.2, calculate how much each consumer wants to save (or borrow - if optimal saving is
negative) and consumption in each period. Is this allocation feasible? In other words, given
the amount of total income in the economy in each period, is it possible to consume as much
as this allocation would suggest?
e. Find the market clearing interest rate (the interest rate where total consumption adds to
total income in each period)
f. Now assume consumer B’s income in period 2 increases to y
B
2 = 100 (everything else stays
the same). Find the new equilibrium interest rate. Is it higher or lower than the interest
rate in part e? Explain the economic intuition of this result (hint: think about what has
happened to the relative scarcity of total income in each period and how that affects desired
saving by each consumer).
g. Now assume consumers discount consumption in period 2 relative to period 1 so that their
utility function becomes
U(c1, c2) = ln(c1) + β ln(c2)
Where β is a discount factor between 0 and 1. Keeping the values from question f, what is
the equilibrium interest rate if β = 0.9? Explain the economic intuition.
5 pages
Economic Brief
Oil and gas extraction industry is recognized as being a critical part of the economy of the United States both in the lon ...
Economic Brief
Oil and gas extraction industry is recognized as being a critical part of the economy of the United States both in the long-run and short-run. This ...
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