Answer:
A) change in the cost of eating index = <u>20% increase</u>
B) Suppose that consumers are completely indifferent between two chickens and one ham. For this example, how large is the substitution bias in the official "cost-of-eating" index?
The <u>INCREASE</u> in the cost-of-eating index is <u>18</u> %.
The <u>OVERESTIMATE</u> of inflation in the cost of eating reflects substitution bias.
Explanation:
2015
product units unit cost total
chickens 30 $4 $120
hams 10 $5 $50
<u>steaks 10 $8 $80</u>
total $250
2016
product units unit cost total
chickens 30 $5 $150
hams 10 $7 $70
<u>steaks 10 $8 $80</u>
total $300
A) ($300 - $250) / $250 = 20%
B)
if consumers are indifferent for 2 chickens per 1 ham, then the new basket should be assuming consumers will purchase the cheapest option:
2016
product units unit cost total
hams 25 $7 $175
<u>steaks 10 $8 $80</u>
total $255
the increase in inflation would have been = ($255 - $250) / $250 = 2%
the substitution bias = reported inflation - real inflation = 20% - 2% = 18%
Answer:
the bonds' current market value = PV of face value + PV of coupon payments
a. The bond has a 6 percent coupon rate.
PV of face value = $1,000 / (1 + 5%)²⁴ = $310.07
PV of coupon payments = 30 x 13.799 (PV annuity factor, 5%, 24 periods) = $413.97
bond's market value = $724.04
b. The bond has a 8 percent coupon rate.
PV of face value = $1,000 / (1 + 5%)²⁴ = $310.07
PV of coupon payments = 40 x 13.799 (PV annuity factor, 5%, 24 periods) = $551.96
bond's market value = $862.03
TRUE. A company might conduct full-scale practice drills, including closing a building and working from a remote location, in order to test its contingency plans
Answer:
a. Profit; $520
b. Firms will enter; Left
c. Zero profits or normal profits
Explanation:
A restaurant is operating in a monopolistic competitive market.
The restaurant is producing 260 meals per day.
This is the profit maximizing level of output where the marginal cost is equal to marginal revenue.
The average total cost at this point is $10.
The price level is $12.
The profit or loss to the restaurant will be equal to the difference between total revenue and total cost.
a. Profit
= Total Revenue - Total cost
= $12
260 - $10 260
= $3,120 - $2,600
= $520
b. This supernormal profit will attract other firms to enter the market, as a result the market share of existing firms will decline. The demand curve of the restaurant will move to the left.
c. In the long run, the firms in a perfectly competitive market earn only zero economic profits as positive profits attract new firms and negative profits cause the firms to leave.
So the restaurant will have zero or normal profits in the long run.
Answer:
Direct labor
Explanation:
The role of direct labor is to convert direct material into the finished products. Without the help of direct labor, it is impossible to convert the direct material into the finished goods.
Here, the direct material means the labor which works on manufacturing a product which is directly related to the production level. The allocation of direct labor is done based on the number of hours worked or product.
Hence, The efforts of employees who work directly to convert direct materials into the finished product are referred to as direct labor
