What are the criteria Jason should use in evaluating investment alternatives? 2.What questions does this case raise that you nee
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Answer:
<u>Part (a):</u>
Make a table showing the value of the marginal product for each screen from the first through the fifth:
<u>Solution: </u>
The answer is attached.
<u>Part (b):</u>
How many screens will be built if the real interest rate is 5.5 percent?
<u>Answer:</u> 3 screens
<u>Part (c): </u>
How many screens will be built if the real interest rate is 7.5 percent?
<u>Answer:</u> 1 screen
<u>Part (d):</u>
How many screens will be built if the real interest rate is 10 percent?
<u>Answer:</u> 0 screens
<u>Part (e): </u>
If the real interest rate is 5.5 percent, how far would construction costs have to fall before the builder would be willing to build a five-screen complex?
<u>Answer:</u> $727,272.73(approx.)
Explanation:
Part (a):
Make a table showing the value of the marginal product for each screen from the first through the fifth:
Solution:
The solution is attached with working.
<u>Part (b):</u>
<u>How many screens will be built if the real interest rate is 5.5 percent?</u>
<u>Solution:</u>
3 screens
The interest cost of each screen = 5.5% x $1,000,000 = $55,000.
There are no other costs mentioned. The value of marginal product exceeds $55,000 for 3 screens.
Therefore, 3 screens should be built.
<u>Part (c): </u>
<u>How many screens will be built if the real interest rate is 7.5 percent?</u>
<u>Solution:</u>
1 screen
The value of the marginal product exceeds the interest cost (7.5% of $1,000,000, or $75,000) for only the first screen.
Thus, <u>one</u> screen will be built.
<u>Part (d):</u>
<u>How many screens will be built if the real interest rate is 10 percent?</u>
<u>Solution:</u>
0 screens
At 10% interest, the interest cost of a screen is $100,000, more than the value of the marginal product of even the first screen.
<u> </u>Thus, no screens will be built.
Part (e):
<u>If the real interest rate is 5.5 percent, how far would construction costs have to fall before the builder would be willing to build a five-screen complex?</u>
<u>Solution:</u>
The value of the marginal product of the fifth screen is $40,000. At an interest rate of 5.5%, building five screens is profitable only if 5.5% times the per-screen construction cost is no greater than $40,000.
<u>Financial cost per screen = real interest rate x construction cost of per screen </u>
$40, 000 = 5.5% x construction cost per screen Construction cost per screen = $40,000 ÷ 5.5%
= $727,272.73(approx.)
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Complete question:
The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium
a. $8 and $12
b. $6 and $4
c. $16 and $9
d. $4 and $6
Answer:
$6 and $4 set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium.
Explanation:
Given,
The marginal utility of the last unit of apples consumed = 12
The marginal utility of the last unit of bananas consumed = 8
Now ,
To find :
The market level for apples and bananas, respectively, will be compatible with the consumer's equilibrium:
= = $6
= = $4
$6 and $4 set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium.