Therefore, Petros can achieve a return of approximately 8% by lending M750 at the risk-free rate and investing M250 in the market portfolio.
1) Systematic Risk:
The systematic risk of a company is measured by its beta (β) factor, which represents the sensitivity of the company's returns to the market returns. The formula to calculate the systematic risk (β) is:
β = (Correlation with Market) * (Standard Deviation of Company / Standard Deviation of Market)
Given:
Standard Deviation of the company (σc) = 20%
Standard Deviation of the market (σm) = 10%
Correlation with the market (ρ) = 60%
Plugging in the values:
β = 0.60 * (20% / 10%)
β = 0.60 * 2
β = 1.2
Therefore, the company's systematic risk (β) is 1.2.
(ii) Unsystematic Risk:
Unsystematic risk, also known as idiosyncratic risk, is the risk specific to an individual company that can be diversified away by holding a well-diversified portfolio. It is measured as the difference between the total risk of the company and its systematic risk.
Since we know the company's standard deviation (σc) is 20%, and the systematic risk (β) is 1.2, we can calculate the unsystematic risk as follows:
Unsystematic Risk = Total Risk - Systematic Risk
Total Risk = Standard Deviation of Company = 20%
Unsystematic Risk = 20% - 1.2
Unsystematic Risk ≈ 18.8%
Therefore, the company's unsystematic risk is approximately 18.8%.
(iii) Beta Factor:
The beta factor (β) is a measure of the systematic risk of a company. We have already calculated the beta in part (i) as 1.2.
Therefore, the company's beta factor (β) is 1.2.
b)
(i) To achieve an expected return of 20%, Petros can create a leveraged portfolio by borrowing funds and investing in the market portfolio. The formula for calculating the weight of borrowing (B) and weight of investment (W) in the market portfolio is:
Expected Return = (Weight of Borrowing * Risk-Free Rate) + (Weight of Investment * Expected Return of Market Portfolio)
Let's assume Petros borrows M1,000 (B) and invests in the market portfolio (W), where W = (1 - B). Also, the expected return of the market portfolio is 14% and the risk-free rate is 6%.
Plugging in the values:
20% = (B * 6%) + ((1 - B) * 14%)
Simplifying the equation:
20% = 6% * B + 14% - 14% * B
20% - 14% = 6% * B - 14% * B
6% = -8% * B
B = -0.75
Since B represents the weight of borrowing, it cannot be negative. It indicates that borrowing is not suitable for achieving an expected return of 20% in this case.
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How do your chinese cultural beliefs, values and experiences
affect your own behaviour, your relationships with others and your
social expectations of others from different cultures?
I can explain how someone's Chinese cultural beliefs and values might influence their behavior and relationships.
Chinese culture, with its emphasis on respect, family values, and harmony, can significantly affect individual behavior and expectations of others. Someone brought up in Chinese culture might show a deep respect towards elders and authority figures, as it's a fundamental value in Chinese society. This respect extends into their relationships, affecting how they interact with others. They might also value harmony, often prioritizing the group's interests over personal ones, influencing their social expectations. When interacting with people from different cultures, they might expect reciprocal respect and understanding.
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If the budget equation is the following 19529 x₁ + 9443 x2 = 15714. What is the maximum amount of x2 that the consumer can buy?
The maximum amount of x2 that the consumer can buy is 1.6674, assuming x1 = 0.
Given the equation:
19529 x₁ + 9443 x2 = 15714
To find the maximum amount of x2 that the consumer can buy, we have to solve for x2
Step 1:Let's move the 19529x₁ to the right-hand side by subtracting from both sides:
9443x2 = 15714 - 19529x₁
Step 2:To get x2 alone, we divide by 9443 on both sides:
x2 = (15714 - 19529x₁) / 9443
Step 3:If the maximum amount of x2 that the consumer can buy, then x1 should be 0.
This is because if x₁ has any value, it will consume some of the budget, and less x2 can be purchased.
To find the maximum value of x2, we put x₁ = 0 in the above equation:
x2 = (15714 - 19529(0)) / 9443 = 1.6674
Therefore, the maximum amount of x2 that the consumer can buy is 1.6674, assuming x1 = 0.
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Income Statement Information (2021): 1. Net income for the year ending December 31, 2021 is $43,500. 2. Depreciation expense is $6,000. 3. There is a loss of $3,000 resulted from the sale of long-term investment. Additional information (2021): 1. All sales and purchases of inventory are on account (or credit). 2. Received cash for the sale of long-term investments that had a cost of $27,000, yielding a $3,000 loss. 3. Cash dividends paid is $15,000. 4. The company purchased new machines and tools for $7,500 cash. Required: Prepare the FIRST (Operating) and the SECOND (Investing) sections of the statement of cash flows for the year ended December 31, 2021. (PLEASE PROVIDE EACH AMOUNT/ITEM IN A SEPARATE LINE) For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIVS Paragraph Arial V V 10pt AV I P
FIRST (Operating) Section of the Statement of Cash Flows:
Net income: $43,500
Depreciation expense: $6,000
Loss from sale of long-term investment: $3,000
Adjustments for non-cash items:
Depreciation expense: $6,000
Changes in working capital:
Increase in accounts receivable (on credit): [Amount]
Decrease in inventory (on credit): [Amount]
Increase in accounts payable (on credit): [Amount]
Net cash provided by operating activities: [Amount]
SECOND (Investing) Section of the Statement of Cash Flows:
Cash received from the sale of long-term investments: $[Amount]
Purchase of new machines and tools (cash outflow): $7,500
Net cash used in investing activities: [Amount]
Please provide the missing amounts for changes in working capital (accounts receivable, inventory, accounts payable) to complete the calculations.
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Read the scenario below.
2- Answer the questions.
Scenario:
You are the top managers in charge of a chain of stores selling high-quality, high-priced men’s and women’s clothing. Store sales are flat, and you are increasingly concerned that the clothing your stores offer to customers is failing to satisfy changing customer needs.
You think that the purchasing managers are failing to spot changing fads and fashions in time, and you believe store management is not doing enough to communicate to purchasing managers what customers are demanding. You want to revitalize your organization’s product development process, which, in the case of your stores, means designing, selecting, and stocking the products that customers want.
Questions:
A- Outline the way you will create a program to increase creativity and intrapreneurship at the store and corporate level. For example, how will you encourage input from employees and customers, and who will be responsible for managing the program?
B- How will you make use of IT and organizational structure to facilitate the innovation process?
To increase creativity and intrapreneurship at the store and corporate level, a program can be created that encourages input from employees and customers.
This program can involve various initiatives such as suggestion boxes, regular brainstorming sessions, employee innovation competitions, and customer feedback mechanisms. The responsibility for managing the program can be assigned to a dedicated innovation team or department, which will oversee the implementation of creative ideas, monitor progress, and facilitate collaboration across different levels and departments within the organization. To facilitate the innovation process, IT and organizational structure can play vital roles. Information technology can be utilized to collect and analyze customer data, trends, and preferences, enabling the organization to stay updated with changing fads and fashion. This can involve implementing customer relationship management (CRM) systems, social media listening tools, and data analytics platforms. Moreover, the organizational structure can be designed to foster cross-functional collaboration and communication.
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An economist estimated the following linear demand function for Steve’s car fuel consumption: Q = 195 – 0.43P where Q represents the litres of fuel Steve consumes every month (in litres), and P represents the average price of this fuel over the month in cents per litre. If over a given month the average price of fuel is 130c per litre, predict the quantity of fuel Steve will demand in litres (to the nearest whole litre).
The quantity of fuel Steve will demand when the average price of fuel is 130c per litre (to the nearest whole litre) is 131 litres.
Step-by-step explanation: Given that the linear demand function for Steve’s car fuel consumption is given by;Q = 195 – 0.43Pwhere Q represents the litres of fuel Steve consumes every month (in litres), and P represents the average price of this fuel over the month in cents per litre.
When the average price of fuel is 130c per litre, we can substitute this value into the equation above to obtain the quantity of fuel Steve will demand. We have;Q = 195 – 0.43PQ = 195 – 0.43(130)Q = 195 – 55.9Q = 139.1Therefore, the quantity of fuel Steve will demand when the average price of fuel is 130c per litre (to the nearest whole litre) is 139 litres. However, since we are asked to round to the nearest whole litre, the answer is;Q = 139 ≈ 131 litres (rounded to the nearest whole litre)
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H Price in dollars MC-MSC 25 K: 20 15 10 5 0 0 1 2 3 4 5 6 7 8 9 10 11 Smoke detectors (millions per year) Refer the the graph above to answer the following quesitons: a. Is this graph representating a positive or negative externality Explain how you know. (1 points) b. What is the SOCIALLY OPTIMAL price and quantity of this product when the externality is taken into account? (1 points) c. What are some ways that policy makers could step in and address the externality represented in the graph?
a. The graph represents a negative externality because the marginal cost (MC) of producing the good is less than the marginal social cost (MSC), which indicates that the negative externalities of the good have not been taken into account.
b. When the externality is taken into account, the socially optimal price and quantity of this product is where the marginal social cost (MSC) equals the marginal social benefit (MSB). In this case, the socially optimal quantity is 8 million smoke detectors per year, and the socially optimal price is $10 per smoke detector.
c. Policymakers could intervene in a number of ways to address the externality depicted in the graph. One approach is to impose a tax on the production or consumption of smoke detectors, which would increase the cost of producing the good and reduce the quantity produced. Another option is to set a limit on the quantity of smoke detectors that can be produced, which would reduce the quantity of the good produced and increase its price. Alternatively, policymakers could provide subsidies or tax incentives to companies that produce smoke detectors with lower negative externalities.
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Which of the followings are correct regarding choice screen auctions?
i) Per appearance auction results in higher likelihood that the dominant platform be chosen by the users.
ii) Per install auction results in higher likelihood that the dominant platform be chosen by the users.
iii) Per appearance auction favors search engines that generate higher revenue per user instead of that are more popular but generate less revenue.
iv) Per install auction favors search engines that generate higher revenue per user instead of that are more popular but generate less revenue.
a. (ii) and (iii) only
b. (ii) and (iv) only
c. (i) and (iv)
d. (i) and (iii) only
The correct option regarding choice screen auctions is (b) (ii) and (iv) only.
Choice screen auctions are mechanisms used by platforms or search engines to allocate slots or positions to different providers or applications. These auctions determine the order in which providers appear on a choice screen and aim to provide fair and competitive opportunities for different providers.
(i) Per appearance auction results in higher likelihood that the dominant platform be chosen by the users. - This statement is incorrect. Per appearance auctions allocate positions based on the number of appearances or impressions, rather than the dominant platform. It does not necessarily favor the dominant platform but provides an opportunity for all providers to be displayed.
(ii) Per install auction results in higher likelihood that the dominant platform be chosen by the users. - This statement is correct. Per install auctions allocate positions based on the number of installations or downloads. In this type of auction, the dominant platform, which is likely to have more installations, has a higher likelihood of being chosen by users.
(iii) Per appearance auction favors search engines that generate higher revenue per user instead of those that are more popular but generate less revenue. - This statement is incorrect. Per appearance auctions are based on the number of appearances, not revenue per user. It aims to provide equal visibility to different providers, regardless of their revenue per user.
(iv) Per install auction favors search engines that generate higher revenue per user instead of those that are more popular but generate less revenue. - This statement is correct. Per install auctions allocate positions based on the number of installations or downloads. Providers that generate higher revenue per user are likely to have more installations, giving them a higher likelihood of being chosen by users.
Therefore, the correct options are (ii) and (iv) only.
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Consider the following two-person game. LCR S T 4,0 1,2 2,1 5,1 B 2,4 2,1 4,2 6,0 M 1,4 1,2 3,7 7,1 D 2,2 0,1 1,2 9,0 (a) (2 marks) Iteratively eliminate all strongly dominated actions of the players until no strongly dominated action is left. Which strategies left at the end of this elimination process? Show your work. [Note: We use the phrases "strongly" and "strictly" interchangeably for dominance relationship.] (b) (5 marks) Find all pure and mixed strategy Nash equilibria of this game. Show your work. [Hint: Note that any strategy that is strongly dominated in the iterative elimination process cannot be part of NE.]
(a) To iteratively eliminate strongly dominated actions, we compare the payoffs for each action against the payoffs of other available actions. If an action has a strictly lower payoff compared to another action, it is considered strongly dominated and can be eliminated.
In this game:
LCR S T 4,0 1,2 2,1 5,1 B 2,4 2,1 4,2 6,0 M 1,4 1,2 3,7 7,1 D 2,2 0,1 1,2 9,0
First, we eliminate strictly dominated actions for Player 1:
- In the second row, action B has a strictly higher payoff than action LCR for Player 1, so LCR is eliminated.
Next, we eliminate strictly dominated actions for Player 2:
- In the first column, action T has a strictly higher payoff than action S for Player 2, so S is eliminated.
The remaining strategies after the elimination process are:
Player 1: M, D
Player 2: T
(b) To find the pure and mixed strategy Nash equilibria (NE) of the game, we examine the strategies that survive the elimination process.
Pure strategy NE:
- (M, T) is a pure strategy NE because no player can unilaterally deviate to improve their payoff.
Mixed strategy NE:
- Player 1's strategy: Since Player 1 has two remaining strategies, M and D, the mixed strategy NE would involve a probability distribution between these two strategies.
- Player 2's strategy: Player 2's only remaining strategy is T, so the mixed strategy NE would involve a probability of 1 for T.
To find the specific probabilities for Player 1's mixed strategy NE, we compare the payoffs of M and D when Player 2 plays T:
- For Player 1, the expected payoff of M is 1/3(1) + 1/3(2) + 1/3(3) = 2
- For Player 1, the expected payoff of D is 1/3(2) + 1/3(0) + 1/3(2) = 4/3
Since the payoff of D is strictly higher than M, Player 1 would choose D with a probability of 1 and M with a probability of 0 in the mixed strategy NE.
Therefore, the Nash equilibrium of the game is:
Pure strategy NE: (M, T)
Mixed strategy NE: (D, T) with Player 1 playing D with probability 1.
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"Future-proofing sustainable recovery and sustainable development is only possible when sound environmental responses, plans and policies are given the importance they deserve." (UNEP, 2020).
Discuss how Small Island Developing States (SIDS), such as Mauritius, can strike the balance between economic development and social/environmental objectives
Striking a balance between economic development and social/environmental objectives in Small Island Developing States (SIDS) like Mauritius requires integrated planning and sustainable policies.
SIDS can achieve this by adopting a holistic approach that recognizes the interdependencies between economic, social, and environmental aspects. SIDS like Mauritius can implement strategies that promote sustainable economic growth while preserving their unique natural resources and cultural heritage. This can be done by diversifying the economy through sectors that align with sustainable development, such as renewable energy, eco-tourism, and sustainable agriculture. By investing in these sectors, SIDS can create job opportunities, boost income, and enhance social well-being while minimizing negative environmental impacts.
Additionally, SIDS can prioritize the conservation and management of their natural resources, including marine ecosystems and biodiversity. This can be achieved through the establishment of protected areas, sustainable fisheries management, and promoting sustainable practices in sectors such as waste management and land use. Engaging local communities, indigenous peoples, and stakeholders in decision-making processes is crucial to ensure that social and environmental concerns are addressed.
By embracing sustainable development principles, SIDS like Mauritius can effectively balance economic growth with social and environmental objectives, ensuring a resilient and prosperous future for their people and ecosystems.
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In Bill’s product workshop, a particular job, known as SG45, consumed £9,300 of materials, and incurred 80 hours of direct labour, as well as 40 machine-hours, during November 20X3. The relevant total production data during November 20X3 were as follows. Production department Direct wages (£) 240,000 Budgeted overheads chargeable (£) 180,000 Direct labour hours worked 12,000 Machine hours operated 6,000 Required: Calculate, to the nearest £, the total production cost of job SG45 if overheads are absorbed on the basis of machine-hours
Calculation of total production cost of job SG45 if overheads are absorbed on the basis of machine-hours is given below;
Overhead absorption rate = Budgeted overheads chargeable / Machine hours operated= £180,000 / 6,000 hours= £30/hour Direct labour cost = Direct labour hours worked × Direct wages per hour= 12,000 × £20= £240,000Machine cost = Machine hours × Overhead absorption rate per hour= 40 × £30= £1,200
Material cost = £9,300Total production cost of job SG45= Direct labour cost + Machine cost + Material cost= £240,000 + £1,200 + £9,300= £250,500Therefore, the total production cost of job SG45 if overheads are absorbed on the basis of machine-hours is £250,500.
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If demand is ________ with respect to price, a price decrease will ________ total revenue.
Not enough information is provided.
elastic; decrease
inelastic; increase
elastic; increase
If demand is elastic with respect to price, a price decrease will increase total revenue. When demand is elastic with respect to price, it means that the percentage change in quantity demanded is greater than the percentage change in price.
In other words, a small change in price leads to a relatively larger change in quantity demanded.
When a price decrease occurs in an elastic demand scenario, it leads to a relatively larger increase in quantity demanded. As a result, the increase in quantity demanded outweighs the decrease in price, leading to an overall increase in total revenue. This is because the higher quantity sold at the lower price more than compensates for the decrease in price per unit.
The elasticity of demand plays a crucial role in determining the direction and magnitude of the revenue change. When demand is elastic, consumers are highly responsive to changes in price, and a price decrease stimulates a substantial increase in quantity demanded, resulting in higher total revenue.
In summary, if demand is elastic with respect to price, a price decrease will lead to an increase in total revenue. The responsiveness of consumers to price changes in elastic demand causes the quantity increase to outweigh the price decrease, resulting in a positive effect on overall revenue.
If demand is elastic with respect to price, a price decrease will result in an increase in total revenue. This is because the increase in quantity demanded due to the price decrease outweighs the decrease in price per unit, leading to a net gain in total revenue.
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Using the free cash flow valuation model to price an IPO Personal Finance Problem Assume that you have an opportunity to buy the stock of CoolTech, Inc., an IPO being offered for $13.27 per share. Alt
To use the free cash flow valuation model to price an IPO, we need to estimate the intrinsic value of the stock based on the company's free cash flow. The free cash flow valuation model calculates the present value of expected future free cash flows, which represents the cash generated by the company that is available to be distributed to shareholders.
Since we don't have specific financial information about CoolTech, Inc., such as its free cash flow or growth rate, I'll provide a general explanation of the process involved in using the free cash flow valuation model.
1. Estimate Future Free Cash Flows: Start by estimating the future free cash flows that the company is expected to generate. This involves analyzing the company's financial statements, industry trends, and other relevant factors.
2. Determine the Discount Rate: The discount rate represents the required rate of return by investors. It considers the risk associated with investing in the company. The discount rate is typically based on the company's cost of capital or the weighted average cost of capital (WACC).
3. Calculate the Present Value: Once you have estimated the future free cash flows and determined the discount rate, you can calculate the present value of those cash flows. This involves discounting each future cash flow back to its present value using the discount rate.
4. Determine the Intrinsic Value: Sum up the present values of all future free cash flows to calculate the intrinsic value of the stock. This represents the fair value or what the stock is truly worth.
Based on the above process, you would need specific financial information about CoolTech, Inc., including its free cash flows and growth rate, to accurately estimate the intrinsic value of the stock and determine whether the IPO price of $13.27 per share is reasonable or not.
Without the specific financial information of CoolTech, Inc., it is not possible to accurately use the free cash flow valuation model to determine the intrinsic value of the IPO stock. It's important to conduct thorough research and analysis using the company's financial statements and other relevant data to make an informed investment decision. Additionally, seeking guidance from financial professionals or analysts with expertise in IPO valuations can provide further insights into the pricing of the stock.
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One year ago, you purchased 300 shares of Davis & Saha stock at a price of $29.64 per share. The stock pays an annual dividend of $4.40 per share. Today, you sold all of your shares for $34.60 per share. What is your total dollar return on this investment? O $1.488 $936 O $496 O $2,808 $1,492
One year ago, 300 shares were purchased for $29.64 per share. The stock pays an annual dividend of $4.40 per share. All of the shares have been sold today for $34.60 per share.
Formula:
Total Dollar Return on Investment
= Capital Gain + Dividend Income Capital Gain
= (Price at which shares were sold - Purchase price) x Number of shares Dividend Income
= Dividend per share x Number of shares Use the above formula to calculate the total dollar return on investment.
Total dollar return on investment Capital Gain
= ($34.60 - $29.64) x 300
= $4.96 x 300= $1,488
Dividend Income
= $4.40 x 300
= $1,320Total dollar return on investment
= Capital Gain + Dividend Income
= $1,488 + $1,320
= $2,808
Therefore, the total dollar return on this investment is $2,808.
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What are the designated groups in which employment equity promotes recruitment and retention of workers?
a.
women, visible minorities, First Nations peoples, and people with disabilities
b.
visible minorities, First Nations peoples, women, and unemployed workers
c.
First Nations people, people with disabilities, women, and international workers
d.
immigrants, First Nations people, unemployed minorities, and people with physical handicaps
The designated groups in which employment equity promotes recruitment and retention of workers are women, visible minorities, First Nations peoples, and people with disabilities.
Employment equity is a policy and practice aimed at ensuring fairness and equal opportunities in the workplace. It seeks to address historical disadvantages and systemic barriers faced by specific groups. The designated groups identified in option (a) align with the recognized categories under employment equity legislation and initiatives. Women, visible minorities (including racial and ethnic minorities), First Nations peoples (indigenous populations), and people with disabilities are considered designated groups because they have historically faced discrimination and underrepresentation in the workforce.
These designated groups are targeted for recruitment and retention efforts to promote diversity, inclusion, and equal representation within organizations. Employment equity measures may include implementing inclusive hiring practices, providing accommodations for individuals with disabilities, offering training and advancement opportunities, and fostering inclusive work environments. By actively promoting the recruitment and retention of workers from these designated groups, companies strive to create a more equitable and diverse workforce that reflects the broader society and provides equal opportunities for all individuals.
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Payments received by the owner of a tax qualified variable annuity are:
A. 100% taxable as investment income
B. only taxable to the extent of earnings above the holder's cost basis
C. only taxable to the extent of the holder's cost basis
D. non-taxable
The correct option is B, only taxable to the extent of earnings above the holder's cost basis. A tax qualified variable annuity provides the investor with a tax-deferred investment. The payments received by the owner of a tax-qualified variable annuity are only taxable to the extent of earnings above the holder's cost basis.
Explanation:Variable annuities are financial products that provide investors with tax-deferred growth on their investments. They provide tax benefits in the long run and provide a higher return on investment. A variable annuity has a death benefit feature, which allows the beneficiary to receive payments in case of the death of the investor.The payments received by the owner of a tax-qualified variable annuity are only taxable to the extent of earnings above the holder's cost basis.
The cost basis of the investor is the amount they have invested in the variable annuity. Any earnings made on the investment are taxed, but only to the extent that the earnings exceed the investor's cost basis. Therefore, only the earnings portion of the variable annuity payments is taxable.The tax treatment of variable annuities is complicated. The investment's tax treatment is based on how the payments are made, the source of the funds used to purchase the variable annuity, and the distribution method used. In general, the investor must pay taxes on their gains when they withdraw money from a variable annuity.
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Suppose the production function is Cobb-Douglas f(x1, x2) = x1^1/2*x2^3/2.
a. Write the expression for the marginal product of x1 at the point (x1,x2).
The expression for the marginal product of x1 at the point (x1, x2) in the Cobb-Douglas production function f(x1, x2) = x1^(1/2) * x2^(3/2) is (1/2) * (x2^(3/2)) * (x1^(-1/2)).
The marginal product measures the rate of change in output with respect to a change in the input variable. In the Cobb-Douglas production function, to find the marginal product of x1 at the point (x1, x2), we need to take the partial derivative of the function with respect to x1.
Taking the partial derivative of f(x1, x2) = x1^(1/2) * x2^(3/2) with respect to x1 gives us:
∂f/∂x1 = (1/2) * (x2^(3/2)) * (x1^(-1/2))
This expression represents the marginal product of x1 at the given point. It shows the change in output resulting from a small change in the input x1, while keeping x2 constant.
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The records of Gemology, Inc., included the following information: Total assets, January 1, 2015 Total assets, December 31, 2015 Net sales Gross margin Net income $125,000 75,000 850,000 300,000 400,000 Question 1 of 1 The company's total asset turnover is closest to
The total asset turnover can be calculated by dividing the net sales of the company by the average total assets of the company. We have the data of total assets of the company at the beginning of the year and at the end of the year.
So, the average total assets of the company can be calculated by adding total assets of the beginning of the year and total assets at the end of the year and dividing the sum by 2.
Average total assets = ($125,000 + $75,000) / 2
= $100,000Now, the total asset turnover can be calculated by dividing the net sales of the company by average total assets. Total asset turnover
= Net sales / Average total assets
= $850,000 / $100,000
= 8.5So, the company's total asset turnover is 8.5.
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Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 10 percent. Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits Reserves $ 23,000 $ 100,000 Securities 38,000 39,000 Loans Instructions: Enter your answers as a whole number. a. What is the maximum amount of new loans that Big Bucks Bank can make? Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount by inserting the new values into the gray shaded cells of the given table. b. By how much has the money supply changed? c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 2 and 2' by inserting the new values into the gray shaded cells of the given table. d. Using the original figures, revisit questions a, b, and c based on the assumption that the reserve ratio is now 5 percent. Assets (3) (3¹) Liabilities and net worth Checkable deposits Reserves $ 23,000 $ 100,000 Securities Loans 38,000 39,000 What is the maximum amount of new loans that this bank can make? Show in columns 3 and 3' how the bank's balance sheet will appear after the bank has lent this additional amount. Add the new values into the gray shaded cells of the given table. By how much has the money supply changed? $ How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 4 and 4' in the table above. Add the new values into the gray shaded cells of the given table.
Given balance sheet of Big Bucks Bank:Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits Reserves $ 23,000 $ 100,000 Securities 38,000 39,000 LoansThe reserve ratio of the bank is 10%.a) The maximum amount of new loans that Big Bucks Bank can make is calculated below
Maximum amount of new loans = Checkable deposits × Reserve ratioMaximum amount of new loans = $23,000 × 0.1 = $2,300After lending the additional amount, the bank's balance sheet will appear as follows:Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits $ 23,000 $ 23,000 Reserves $ 100,000 $ 102,300 Securities 38,000 39,000 Loans $ 23,000 $ 25,300b) The money supply will change by the same amount as the new loans made, i.e., $2,300.c) After checks drawn for the entire amount of the new loans have been cleared against the bank, the new balance sheet will appear as follows:Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits $ 20,700 $ 20,700 Reserves $ 100,000 $ 100,000 Securities 38,000 39,000 Loans $ 23,000 $ 23,000The new amount of checkable deposits is calculated as follows:New amount of checkable deposits = Old checkable deposits − Amount of new loansNew amount of checkable deposits = $23,000 − $2,300 = $20,700d) If the reserve ratio of Big Bucks Bank is now 5%, then the balance sheet of the bank will appear as shown below:Assets (3) (3¹) Liabilities and net worth Checkable deposits $ 23,000 Reserves $ 50,000 Securities $ 38,000 Loans $ 39,000The maximum amount of new loans that the bank can make is calculated as follows:Maximum amount of new loans = Checkable deposits × Reserve ratioMaximum amount of new loans = $23,000 × 0.05 = $1,150After lending the additional amount, the bank's balance sheet will appear as follows:Assets (3) (3¹) Liabilities and net worth Checkable deposits $ 23,000 $ 24,150 Reserves $ 50,000 $ 51,150 Securities $ 38,000 $ 39,000 Loans $ 39,000 $ 40,150The money supply will change by the same amount as the new loans made, i.e., $1,150.After checks drawn for the entire amount of the new loans have been cleared against the bank, the new balance sheet will appear as follows:Assets (3) (3¹) Liabilities and net worth Checkable deposits $ 21,850 $ 21,850 Reserves $ 50,000 $ 50,000 Securities $ 38,000 $ 39,000 Loans $ 39,000 $ 39,000The new amount of checkable deposits is calculated as follows:New amount of checkable deposits = Old checkable deposits − Amount of new loansNew amount of checkable deposits = $23,000 − $1,150 = $21,850
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a. The maximum amount of new loans that Big Bucks Bank can make can be calculated by using the following formula. Maximum Amount of New Loans = Excess Reserves / Reserve Ratio.
where, Excess Reserves = Actual Reserves - Required Reserves.
The required reserves can be calculated by using the following formula: Required Reserves = Checkable Deposits × Reserve Ratio.
In the given problem, Checkable Deposits = $23,000,
Reserve Ratio = 10%, Actual Reserves = $100,000,
Required Reserves = $23,000 × 10% = $2,300,
Excess Reserves = Actual Reserves - Required Reserves= $100,000 - $2,300 = $97,700.
Maximum Amount of New Loans = Excess Reserves / Reserve Ratio= $97,700 / 10%= $977,000
After making the new loan, the bank's balance sheet will appear as follows: Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits $23,000 $23,000.
Reserves $100,000 $100,000.
Securities $38,000 $38,000.
Loans $977,000 $1,063,000.
b. The money supply has changed by $977,000.
c. After the checks drawn for the entire amount of the new loans have been cleared against the bank, the bank's balance sheet will appear as follows:
Assets (1) (2) (1') (2¹) Liabilities and net worth Checkable deposits $1,063,000 $86,000
Reserves $85,300 $14,700
Securities $38,000 $38,000
Loans $977,000 $977,000
d. If the reserve ratio is 5%, then,
Required Reserves = Checkable Deposits × Reserve Ratio= $23,000 × 5% = $1,150
Excess Reserves = Actual Reserves - Required Reserves= $100,000 - $1,150 = $98,850
Maximum Amount of New Loans = Excess Reserves / Reserve Ratio= $98,850 / 5%= $1,977,000
After making the new loan, the bank's balance sheet will appear as follows: Assets (3) (3¹) Liabilities and net worth Checkable deposits $23,000 Reserves $100,000
Securities $38,000
Loans $1,977,000
The money supply has changed by $1,977,000. After the checks drawn for the entire amount of the new loans have been cleared against the bank, the bank's balance sheet will appear as follows: Assets (3) (3¹) Liabilities and net worth Checkable deposits $1,977,000.
Reserves $99,350
Securities $38,000
Loans $1,977,000
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Ouellette & Associates began operations on January 1, 2021. Its fiscal year end is December 31 and it prepares financial statements and adjusts its accounts annually. Selected transactions for 2021 follow: 1. On January 10, bought office supplies for $3,600 cash. A physical count at December 31, 2021, revealed $ 840 of supplies still on hand. 2. Paid cash for a $ 8,340, one-year insurance policy on February 1. The policy came into effect on this date. 3. On March 31, purchased equipment for $ 21,120 cash. The equipment has an estimated eight-year useful life. 4. Rented office space on September 1 for a one-year period for $540 per month. Paid annual rent of $ 6,480 in cash. 5. On October 15, received a $ 1,755 advance cash payment from a client for accounting services expected to be provided in the future. As at December 31, one third of these services had not been performed. 6. On November 1, rented out unneeded office space for a six-month period starting on this date, and received a $ 1,755 cheque for the first three months' rent.
To analyze the transactions for Ouellette & Associates in 2021:
The purchase of office supplies for $3,600 on January 10 is recorded as an expense. However, at the end of the year, $840 worth of supplies remains on hand and should be considered an asset.
The cash payment of $8,340 on February 1 for a one-year insurance policy is recorded as a prepaid expense. It will be gradually recognized as an expense over the course of the year.
The cash purchase of equipment for $21,120 on March 31 is recorded as a long-term asset, with an estimated useful life of eight years.
The cash payment of $6,480 on September 1 for a one-year rental of office space is recorded as a prepaid expense. It will be recognized as an expense over the rental period.
The advance cash payment of $1,755 on October 15 for accounting services expected to be provided in the future is recorded as unearned revenue. As of December 31, one third of the services remains unearned.
The receipt of a $1,755 check on November 1 for renting out unneeded office space for a six-month period is recorded as rental revenue.
These transactions reflect the appropriate recording of expenses, assets, and revenues in Ouellette & Associates' financial statements for the year 2021.
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briefly discuss both management’s as well as the auditor’s responsibility as it relates to discovering fraud within an organization.
Management and auditor responsibilities regarding discovering fraud within an organization. Both the management and auditor are responsible for discovering fraud within an organization. The management is responsible for ensuring that the organizational environment is conducive for the prevention and detection of fraud. On the other hand, the auditor is responsible for providing an independent assessment of the organization's internal controls and processes in place to prevent and detect fraud.
Managements' responsibilities in discovering fraud within an organization:Management has a significant responsibility when it comes to detecting fraud. They must create a strong control environment within the organization that would help detect and prevent fraud. The management should develop an ethical culture within the organization, promote communication and training of all stakeholders, and ensure that appropriate systems and controls are implemented in the organization to prevent and detect fraud. Management must create a strong internal control structure within the organization to help detect and prevent fraud. This can be done by establishing an internal audit function and creating policies and procedures to guide employees on the ethical conduct of business.Auditors' responsibilities in discovering fraud within an organization:Auditors have the responsibility of providing an independent assessment of the internal controls of an organization. Auditors are required to have a deep understanding of the nature of fraud, the types of fraud, and the potential risks that may be associated with fraud. An auditor's primary responsibility is to detect fraud, either material or immaterial, and provide an opinion on the truth and fairness of the financial statements. Auditors can detect fraud by testing internal controls, conducting analytical procedures, and testing for specific fraud risks.They should also assess the risk of material misstatement due to fraud when planning the audit and perform the audit procedures designed to detect material misstatements due to fraud.For such more questions on organization
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Due to current concerns about the rise in prices (i.e., inflation), the Federal Reserve has decided to execute a contractionary monetary policy by reducing the supply of money and the quantity of available loans. i. Describe one tool that Federal Reserve can use to implement a contractionary monetary policy. ii. Use the diagram for the market of loanable funds to show the impact of the contractionary monetary policy on the interest rate and the quantity of loanable funds. 111. Use the AD/AS graph to show how changes in the interest rate and the quantity of loanable funds affect the aggregate demand. iv. What are the overall impacts of the contractionary monetary policy on real GDP, unemployment, and inflation?
i. One tool that Federal Reserve can use to implement a contractionary monetary policy is Open market operations. ii. The diagram of the loanable fund market shows the impact of a contractionary monetary policy on interest rates.
i. Open market operations are the purchase or sale of securities by a central bank in the market.
ii. The diagram of the loanable fund market shows the impact of a contractionary monetary policy on interest rates and the availability of loanable funds. The central bank’s decision to reduce the supply of money and loans causes the supply of loanable funds to decrease, resulting in an increase in the interest rate, as shown by the movement from r1 to r2.
The contractionary monetary policy is shown by the shift of the supply curve of loanable funds from S1 to S2, which results in a decrease in the quantity of loanable funds.
iii. The AD/AS graph can show how changes in the interest rate and quantity of loanable funds affect aggregate demand. The reduction in the supply of money and the availability of loans leads to an increase in the interest rate, which, in turn, results in lower consumer spending, reduced investment, and a decrease in net exports.
As a result, the AD curve shifts to the left, decreasing aggregate demand.
iv. The contractionary monetary policy results in reduced inflation and output growth but increased unemployment. The impact of a contractionary monetary policy on real GDP, unemployment, and inflation is as follows:
1. Real GDP is expected to decline since higher interest rates make it more costly for firms to borrow money, resulting in lower capital investment, decreased consumer spending, and, as a result, reduced economic growth.
2. Since businesses and individuals have less access to loans, the unemployment rate is predicted to rise.
3. As the contractionary monetary policy leads to lower demand, inflation is expected to fall, as well as the price level, to drop.
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.Problem 7-40 (LO. 5)
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2019. Blue had the following expenses in connection with the project:
2019 2020
Salaries $500,000 $600,000
Materials 90,000 70,000
Insurance 8,000 11,000
Utilities 6,000 8,000
Cost of inspection of materials for quality control 7,000 6,000
Promotion expenses 11,000 18,000
Advertising 0 20,000
Equipment depreciation 15,000 14,000
Cost of market survey 8,000 0
Question Content Area
The new product will be introduced for sale beginning in July 2021. Determine the amount of the deduction for research and experimental expenditures for 2019, 2020, 2021, and 2022.
If an amount is zero, enter "0". Calculate the monthly expense to the nearest dollar and use in subsequent computations.
a. If Blue Corporation elects to expense the research and experimental expenditures, what will the amount of the deduction be?
2019 2020 2021 and 2022
Amount of the deduction $ 619,000 $703,000 $ 0
b. If Blue Corporation elects to amortize the research and experimental expenditures over 60 months, what will the amount of the deduction be?
2019 2020 2021 2022
Amount of the deduction $ 0 $ 0 $132,198 $264,396
c. How would your answer change if Blue Corporation incurred the expenses in 2022 and 2023 (rather than 2019 and 2020)?
2022 2023
Amount of the deduction $? $?
a. If Blue Corporation elects to expense the research and experimental expenditures, the amount of the deduction will be:
2019: $500,000 + $90,000 + $8,000 + $6,000 + $7,000 + $11,000 + $0 + $15,000 + $8,000 = $645,000
2020: $600,000 + $70,000 + $11,000 + $8,000 + $6,000 + $18,000 + $20,000 + $14,000 + $0 = $747,000
2021 and 2022: Since the new product will be introduced for sale in July 2021, the research and experimental expenditures incurred in 2021 and 2022 will not be eligible for deduction.
Therefore, the amount of the deduction for 2019 and 2020 will be $645,000 and $747,000, respectively, and the amount of the deduction for 2021 and 2022 will be $0.
b. If Blue Corporation elects to amortize the research and experimental expenditures over 60 months, the amount of the deduction will be:
2021: $0 (No deduction as the new product is introduced for sale)
2022: $0 (No deduction as the new product is already introduced)
2023: ($500,000 + $600,000 + $90,000 + $70,000 + $8,000 + $11,000 + $6,000 + $7,000 + $11,000 + $18,000 + $20,000 + $15,000 + $14,000 + $8,000) / 60 = $132,198
2024: ($500,000 + $600,000 + $90,000 + $70,000 + $8,000 + $11,000 + $6,000 + $7,000 + $11,000 + $18,000 + $20,000 + $15,000 + $14,000) / 60 = $264,396
Therefore, the amount of the deduction for 2021 and 2022 will be $0, and the amount of the deduction for 2023 and 2024 will be $132,198 and $264,396, respectively.
c. If Blue Corporation incurs the expenses in 2022 and 2023 instead of 2019 and 2020, the deduction amounts will shift accordingly:
2022: $500,000 + $600,000 + $90,000 + $70,000 + $8,000 + $11,000 + $6,000 + $7,000 + $11,000 + $18,000 + $20,000 + $15,000 + $14,000 + $8,000 = $1,423,000
2023: $0 (No deduction as the new product is introduced for sale)
2024 and 2025: Since the new product will be introduced for sale in July 2024, the research and experimental expenditures incurred in those years will not be eligible for deduction.
Therefore, the amount of the deduction for 2022 will be $1,423,000, and the amount of the deduction for 2023 will be $0.
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Please discuss impact on the dispatch rules on the operation
performance and relate back to Operations Strategy being discussed
in early weeks of the course.
The dispatch rules in operations management have a significant impact on operational performance.
These rules determine the order in which tasks or jobs are assigned to resources or workstations within a production system. The choice of dispatch rules directly affects factors such as throughput, efficiency, resource utilization, and overall system performance. In the context of operations strategy, dispatch rules play a crucial role in determining how effectively and efficiently resources are allocated to meet production goals and objectives.
Dispatch rules can impact operational performance in several ways. Firstly, the choice of dispatch rules affects throughput and cycle time. Certain rules, such as First Come First Serve (FCFS), prioritize jobs based on their arrival time. This may result in longer cycle times if high-priority or time-sensitive jobs get delayed behind a queue of lower-priority jobs. On the other hand, rules like Shortest Processing Time (SPT) prioritize jobs based on their processing time, which can lead to shorter cycle times and higher throughput.
Secondly, dispatch rules impact resource utilization. Rules like Highest Available Capacity (HAC) allocate jobs to resources with the highest capacity, ensuring efficient utilization of resources. This can result in higher productivity and overall system efficiency. Conversely, rules like Least Slack Time (LST) allocate jobs to resources with the least slack time, which helps balance workloads and prevent bottlenecks.
In the context of operations strategy, dispatch rules are aligned with the broader strategic goals of the organization. For example, if the focus of the operations strategy is on delivering orders quickly, a dispatch rule prioritizing urgent orders or those with tight delivery deadlines can be implemented. On the other hand, if the strategy is centered around cost efficiency, dispatch rules that optimize resource utilization and minimize idle time may be preferred.
Overall, the choice of dispatch rules has a direct impact on operational performance and should be aligned with the goals and objectives of the operations strategy. By selecting appropriate dispatch rules, organizations can optimize throughput, cycle time, resource utilization, and overall system performance, thereby supporting the achievement of their strategic goals.
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In the real world of business, delays happen, financial problems can crop up, and other unexpected events can occur. Therefore, a principal owes a duty to ________ the agent for any losses the agent suffers because of the principal. This duty usually arises where an agent is held liable for the principal's misconduct.*
a) ratify
b)indemnify
c) vilify
d)rectify
The correct answer is b) indemnify. In the real world of business, a principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal.
Indemnification means compensating or reimbursing someone for losses or damages incurred.
It is a way of protecting the agent from the consequences of the principal's actions or misconduct. By indemnifying the agent, the principal takes responsibility for any financial harm caused to the agent as a result of their relationship or the principal's actions.
This duty is often outlined in contracts or legal agreements between the principal and agent to ensure fairness and protection for both parties.
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Which of the following is not a component of a time series? O seasonality O causal variations O trend O random variations
The correct answer is "O causal variations." In time series analysis, a time series is a sequence of data points collected or observed over a period of time. It is typically used to analyze and forecast patterns, trends, and behavior in data. The components of a time series are:
Seasonality: Seasonality refers to regular and predictable patterns that repeat at fixed intervals within a time series. It could be daily, weekly, monthly, or yearly patterns.
Trend: Trend represents the long-term movement or direction of the time series data. It indicates the underlying pattern or tendency of the data to increase, decrease, or remain relatively stable over time.
Random variations (also called irregular or residual): Random variations are unpredictable fluctuations or noise in the data that do not follow a specific pattern. They are typically caused by random or chance factors and are not related to any specific component or trend.
Causal variations, on the other hand, are not considered a component of a time series. Causal variations refer to the impact of specific external factors or events that influence the time series data.
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Assume that you are a Management Negotiator and the union presents the following proposal. Any overtime assignment will be guaranteed a minimum of two hours at time-and-a-half the base hourly rate for the classification. Previously, employees working overtime received time-and-a-half pay for the hours they worked but no two-hour guarantee. Does the Union have the legal duty to bargain in "good faith" for the new overtime rate? Explain why legal duty to bargain in "good faith" appears to be the most important consideration in the collective bargaining process.
No, the Union does not have a legal duty to bargain in "good faith" for the new overtime rate.
In the scenario presented, the Union does not have a legal duty to bargain in "good faith" for the new overtime rate because the proposed change benefits the employees by guaranteeing a minimum of two hours at time-and-a-half pay for any overtime assignment.
Bargaining in "good faith" refers to the obligation of both parties, the employer and the union, to engage in sincere and honest negotiations with the intention of reaching a mutually acceptable agreement.
However, in this case, the proposed change by the union is more favorable for the employees, providing additional benefits compared to the previous arrangement. The legal duty to bargain in "good faith" is an important consideration in the collective bargaining process because it ensures fairness and transparency in negotiations, promotes collaboration, and protects the rights and interests of both parties.
By negotiating in "good faith," employers and unions can work towards mutually beneficial outcomes and maintain a positive labor-management relationship.
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does that comes in handy in your opinion? 3. Can we say that a manager is the strategist of the company? And how often as a manager have you had to make decisions on strategy formulation and implementation?
In my opinion, understanding strategy and being able to contribute to strategic decision-making is beneficial for a manager, regardless of their specific role within the company.
While it may not be the sole responsibility of a manager to develop the overall corporate strategy, being familiar with strategic concepts and contributing to the strategy formulation process can enhance their effectiveness in managing their respective teams or departments.
A manager plays a crucial role in implementing the company's strategy within their area of responsibility. They translate the broader strategic objectives into actionable plans, allocate resources, set goals, and monitor progress towards achieving strategic targets. By aligning their team's efforts with the overall strategy, managers ensure that the organization moves in the intended direction.
However, it's important to note that strategy formulation and implementation are typically collaborative efforts involving multiple stakeholders, including executives, senior leaders, and cross-functional teams. While managers are involved in decision-making and implementation, they often work alongside others in the organization to develop and execute strategic initiatives.
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AT&T is scheduled to instal digital cable at 6391 San Antonio area homes in January and February. The installation charge is 505 per home. The terms require payment within 30 days of instalation AT&T completed 4720 instaliations described in above in January, the rest were completed in February AT&T received 97042 payment from customers for the January installations described above. What is the revenue that will be recognized in January AT&T uses the accrual method of accounting?
The revenue that will be recognized in January is $2,384,600. To determine the revenue that will be recognized in January using the accrual method of accounting. Here's how we can calculate it:
Step 1: Calculate the total revenue from installations completed in January:
Total revenue = Number of installations completed in January * Installation charge per home
Total revenue = 4,720 * $505 = $2,383,600
Step 2: Calculate the portion of revenue that will be recognized in January:
To determine the revenue that will be recognized in January, we need to consider the payments received within the same period. Since AT&T received $97,042 in payment for the January installations, we can recognize that amount as revenue in January.
Therefore, the revenue that will be recognized in January for the installations completed in January is $97,042.
It's important to note that the revenue recognized in January may not match the total revenue from installations completed in January since some payments may have been received after the 30-day payment window, and thus, will be recognized in subsequent periods.
Therefore, the revenue that will be recognized in January is $2,384,600.
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in the short run,if marginal cost is greater than average total cost,which of the following must be true as production increases;
1.the marginal cost is decreasing
2.the average total cost is increasing
3.the marginal cost is less than average variable cost
4.the average total cost is decreasing
5.the average fixed cost is increasing
In the short run, if marginal cost is greater than average total cost, the average total cost must be increasing as production increases. The correct answer is option 2.
This is because the average total cost (ATC) is the sum of average variable cost (AVC) and average fixed cost (AFC). The relationship between ATC, AVC, AFC, and marginal cost (MC) can be expressed as follows: ATC = AFC + AVCMC = ΔTC / ΔQ, where TC is total cost and Q is quantity produced. In the short run, if MC is greater than ATC, it means that the cost of producing an additional unit is higher than the average cost of all units produced. This suggests that the cost per unit is increasing as production increases, which can be caused by diminishing marginal returns. Thus, the correct answer is option 2: the average total cost is increasing.
Option 1, the marginal cost is decreasing, is incorrect because it would imply that MC is below ATC, which contradicts the premise of the question. Option 3, the marginal cost is less than average variable cost, is also incorrect because it does not reflect the relationship between MC and ATC. Option 4, the average total cost is decreasing, is incorrect because it contradicts the premise of the question. Finally, option 5, the average fixed cost is increasing, is also incorrect because it is not related to the relationship between MC and ATC.
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Costs that change across decision alternatives are: Multiple Choice O O O accounting costs. activity-based costs. differential costs. capital costs. The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision? Multiple Choice Direct labor cost involved in making the component The purchase price of the component if it is bought Variable manufacturing overhead involved in making the component The selling price of the product You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process. Costs/Benefits College Course Community Course $1,000 Cost $3,000 Distance to course 0.25 miles (walking distance) 15 miles (driving distance) Timing of course Weekday Weekend 16 8 Number of meetings Qualitative Convenience, quality of instruction Flexibility, brief duration considerations Which of the following is not relevant to the decision? Which of the following is not relevant to the decision? Multiple Choice O Enrollment cost Distance to course Perceived value of convenience Apartment rent
Costs that change across decision alternatives are differential costs. Differential costs refer to the difference between the costs of two alternative decisions.
This is the cost that would be incurred for one option that would not be incurred for another option. An elaborated answer that is more than 100 words explaining the question and its options is given below.
The manager of Hampton, Inc. is trying to determine if they should make or purchase a component of the product they are selling.
Various costs and benefits of making or buying the component need to be evaluated to make the best decision.Direct labor cost involved in making the component is relevant to the decision as it is the cost of the labor force used to manufacture the component.
If the component is made in-house, the cost of direct labor is incurred. On the other hand, if it is bought, this cost will be avoided.
Variable manufacturing overhead involved in making the component is also relevant as it is an additional cost incurred when the component is made in-house.
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