BUSINESS COLLEGE

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will _______.

Answers

Answer 1
Answer:

Answer:

X demand would rise by 8% ; Y demand would fall by 4%

Explanation:

Price Elasticity of Demand is the responsiveness in demand quantity, due to change in good's price

P.Ed = % change in demand / % change in own price

Cross Price Elasticity is the responsiveness in a good's demand quantity, due to change in other good's price

C.Ed = % change in demand (Y) / % change in other good's price (X)

Given {Good X Elasticities} : P.Ed =  (-) 4 ; C.Ed = 2

Price of X decrease = 2%

P.Ed = 4  = % change in demand / 2

% change in demand of X = 2 x 4 = 8%

P.Ed absolute value ignoring negative has been taken due to law of demand price - demand inverse relationship already depicting it. So, 2% fall in price of X increases it's quantity demanded by 8%

C.Ed = 2 =  % change in Y demand  / 2

% change in Y demand = 2 x 2 = 4%

Cross Price Elasticity of demand is positive in case of substitute goods. These goods can be interchange-ably used to satisfy a particular want. Substitutes price & demand are directly related;- as price fall of a good makes it relatively cheap, increases its demand, decreases other good's demand. So, 2% decrease in good X price decreases good Y demand by 4%

Related Questions

Little Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: Big Brow High Price Low PriceLittle Kona Enter $2 million, $3 million -$2 million, $1 million Don't Enter $0, $8 million $0,$3 millionBoth Little Kona and Big Brew have a dominant strategy in this game.a. Trueb. False
A company purchases a remote building site for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?a. The cost of the building will not include the repainting and recarpeting costs.b. The cost of the building will include the cost of replacing the roof.c. The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.d. The wiring is part of the computer costs, not the building cost.
Cemex, the largest cement producer in Mexico: a) is an insignificant competitor outside its home market. b) has only expanded into Spanish-speaking markets. c) generates about half of its income from outside Mexico. d) was eventually acquired by Holder Bank of Switzerland after Holder Bank entered the Mexican market.
Name a time you believe you applied the utility maximization rule. What were the goods or services you chose to maximize your utility? How did this relate to your budget constraint?
Altogether the national, state, and local governments of the United States spend about a __________ of our gross domestic product.

Your company has money to invest in an employee benefit plan and you have been chosen to be the plan's trustee. As an employee you want to maximize the interest earned on this investment and have found an account that pays 10% compounded continuously. Your company is providing you with $ 1,500 per month to put into your account for 10 years. What will be the balance in this account at the end of the 10-year period

Answers

Answer:

The  balance in this account at the end of the 10-year period is 310000

Explanation:

Solution

Given that:

Now, Recall that,

Time period is = 10 yrs = 12*10 = 120 months

Interest = 10%

= 10%/12 = 0.8333% per month continuously compounded .

Thus,

The rate effective  per month = e^r - 1 = e^0.0083333 - 1 = 0.00836815

so,

The month per  = 1500

The value of future  deposit = 1500 * (F/A,0.836815%,120)

= 1500 * [((1 + 0.00836815)^120 - 1)/ 0.00836815]

= 1500 * [((1.00836815)^120 - 1)/ 0.00836815]

= 1500 * 205.3359

= 308003.89

which is also = 310000 (nearest value)

Debt contracts:A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals.B) have a higher cost of state verification than equity contracts.C) are used less frequently to raise capital than are equity contracts.D) never result in a loss for the lender.

Answers

Answer:

A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals.

Explanation:

Debt contracts are formed when a borrower agrees to repay a lender. Convenants are usually used to settle disputes between the borrower and the lender. Convenants limits the the extent to which debtors take risks, dividend payouts, claim dilution, and other activities that can cause the lender to lose money.

Debt contracts are obtained by businesses to finance short term operations activities or long term expansion plans.

Answer: A) are agreements by the borrowers to pay the lenders fixed dollar amounts at periodic intervals.

Explanation: A debt contract is an agreement in which a borrower agrees to repay funds borrowed to a lender. Usually classes into a short-term and long-term debt contracts, they are used in raising money for working capital or capital expenditures and in return for lending the money, the individuals or institutions become creditors and receive a promise that the capital and interest on the debt will be repaid (usually in fixed amounts over a period of time) in accordance with the terms of the contract. Debt contracts include detailed provisions on collateral involved, interest rate, the schedule for interest payments, and the timeframe to maturity if applicable.

Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm can control? Check all that apply. The firm’s capital budgeting decision rules
The firm’s capital structure Tax rates
The general level of stock prices

Answers

Answer:

The firm’s capital budgeting decision rules

The firm’s capital structure.

Explanation:

Capital budgeting is a term used to describe the proposed amount which a company has decided to set aside in the fort coming year to be spent on infrastructures or capital projects.

An organisation has the power to control its Capital budget, it also has the power to control its decision rules and it Capital structures (the contents of a company's capital spending).

A FIRM CAN NOT CONTROL THE TAX RATES AND THE GENERAL LEVEL OF STOCK PRICE WHICH ARE CONTROLLED BY GOVERNMENT AND EXTERNAL FORCES.

We learned about Cost-Volume-Profit analysis. Review a few of the break even examples in the chapter. 1. If only the selling price per unit of a product increases (variable cost per unit and total fixed costs do not change), does the breakeven point increase or decrease?
2. Using Break Even Analysis, provide a unique mathematical example to support you answer. (Calculate the breakeven point for a base example, then increase the selling price and re-calculate your breakeven point.) Label all numbers in your examples."

Answers

Answer:

decrease

1. fixed cost is 100

variable cost is 10

price = 20

100 / ( 20 - 10) = 10

2. fixed cost is 100

variable cost is 10

price = 30

100 / (30 - 10) = 5

Explanation:

Assume an investor purchases the net assets of an investee for the cash purchase price is $50,400. The investor is willing to purchase the investee's business for this amount because the fair value of PPE is $47,040 and the fair value of a (previously unrecognized) customer list is $10,080 (the fair values of all other assets and liabilities are equal to their book values). The investee company reports the following balance sheet on the acquisition date:Cash $1,680 Accounts payable 3,360
Accounts receivable $3,360 Accrued liabilities 5,040
Inventories 6,720
Current assets 11,760 Current liabilities 8,400
Long-tem liabilities 6,720
PPE, net 16,800 Stockholders' equity 13,440
Total liabilities & equity $28,560 Total assets $28,560
Parts A and B are independent of each other.
A. Provide the journal entry if the investor pays cash and purchases the assets and assumes the liabilities of the investee company.
B. Provide the journal entry if the investor pays cash and purchases all of the stock of the investee's shareholders.

Answers

Answer and Explanation:

The Journal entries are shown below:-

A. Cash Dr, $1,680

Accounts receivable Dr, $3,360

Inventories Dr, $6,720

PPE, net Dr, $16,800

           To Accounts payable $3,360

           To Accrued liabilities $5,040

           To Long-term liabilities $6,720

           To Cash $13,440

(Being purchase of the assets and assumption of the liabilities is recorded)

B. Equity investment Dr, $13,440

                 To Cash $13,440

(Being purchase of the assets and assumption of the liabilities is recorded)

Examples of physical capital include _______________________. Examples of human capital include ______________________________.A) knowledge one picks up through education and training; factories and computers
B) machines and factories; chairs and desks
C) knowledge one picks up through education and experience; factories and machines
D) machines and factories; knowledge one picks up through education and training

Answers

Answer:

D) machines and factories; knowledge one picks up through education and training

Explanation:

The physical capital is the capital that has the physical existence i.e. tangible. It could be seen, feel, or even touched. examples like plant, machinery etc

While on the other hand the human capital is intangible it only effects the production and the operations

Like - skills, knowledge, experience of a worker

Therefore the option D is correct
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