Assignment No.

1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

1. The situation best represent consumer-consumer rivalry. Our textbook declares “Consumer-
consumer rivalry reduces the negotiating power of consumers in the marketplace. It arises
because of the economic doctrine of scarcity. When limited quantities of goods are available,
consumers will compete with one another for the right to purchase the available goods.
Consumers who are willing to pay the highest prices for the scarce goods will outbid other
consumers for the right to consume the goods.”

Base on this case, the 110-year-old pair of Levi’s jeans is the oldest pair of jeans, which is
limited. Levi Strauss & Co is a buyer competing against other bidders for the right to obtain the
antique and scare blue jeans. That’s why Levi Strauss & Co paid an expensive price ($46,532)
for it.

3.

a. N(Q)= B(Q) - C(Q) =150 + 28Q – 5Q2 –（100+ 8Q）

= 50 + 20Q – 5Q2

b. N(1) = 50 + 20 – 5 = 65
N(5) = 50 + 20*5 – 5*52 = 25

c. MNB(Q) = MB(Q) - MC(Q) = 28 – l0Q – 8 = 20 – l0Q

d. MNB(1) =20 – l0*1 = 10
MNB(5) = 20 – l0*5 = –30

e. When MNB(Q) = 20 – l0Q = 0, the net benefits is maximal.

So, when Q=2, the net benefits is maximal

f. When net benefits are maximized at Q=2, marginal net benefits are zero.
So, MNB(2) =20 – l0*2 = 0

5.
CF 75
PV Perpetuity = = =$ 1 ,875
i 0 . 04

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Assignment No.1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

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Assignment No.1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

7. a. the present value of benefits get from attending M.B.A. program (higher earnings, more
comfortable working environment, good prestige) minus the opportunity cost(which is the
earning if you work, the textbook and tuition fee and so on) is the net present value of attending
M.B.A. program. When the net present value of attending M.B.A. program is greater than 0, it’s
rational for an individual to pursue an M.B.A. degree.

b. Since the salaries of managers without M.B.A degrees increased by 15 percent, however
salaries of managers with M.B.A degrees remained constant. That is to say, getting M.B.A
degrees increases the opportunity cost, the value of benefits will decrease, so I would expect
fewer students to apply for admission into M.B.A. programs.

9. Total Benefit: B (Q) = 25Q – Q2

Total Cost: C (Q) = 5 + Q2

Marginal Benefit: MB (Q) = 25 – 2Q

Marginal Cost:

MC (Q) = 2Q

When Q = 2, B (2) = 25 x 2 – 22 = 46

When Q = 10, B (10)= 25 x 10 – 102= 150

Marginal Benefit:

When Q =2, MB (2) = 25 – 2x2 = 21

MB (10) = 25 – 2x10 = 5

We have to deduct Total Benefit, B (10) – B (2) =150 – 46 = 104

So Q = 104 which maximizes the total benefit.

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Assignment No.1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

Total Cost:

Q = 2, C (2) = 5 + 22 = 9

Q= 10, C (10) = 5 + 102 = 105

Marginal Cost:

Q = 2, MC (2) = 2x2 = 4

Q = 10 MC (10) = 2 x 10 = 20

Q Minimizes total cost = C (10) – C (2) = 105 – 9 = 96

Net Benefit = Total Benefit – Total Cost

Net Benefit N (2) = 46 – 9 = 37

N (10) = 150 – 105 = 45

Q Maximizes Net Benefit of 45 – 37 = 8

11. Sold = $ 275,000 Profit = $ 10,000 (Dividends yet to be paid), i = 10%

PV (Firm) = π0 (1+ I / I - g)

275,000 = (1 + 0.1 / 0.1 – g) x 10,000

= (1.1 / 0.1 – g) x 10, 000

= 11, 000 / 0.1 – g

275,000 (0.1 - g) = 11, 000

g = 0.06

This should seem to be reasonable rate of growth.

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Assignment No.1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

13. Current wage = $ 18 per hour, 8 hours shift = $ 144, new pay structure = $ 8 per hour +
0.5% daily profit , Maximum Daily profit = $ 40,000

As per new pay structure employee can get daily = 64 + 200 = $ 264.

As per new pay structure the company can save money

If the daily profit goes below $ 40,000 then the employee daily pay also goes below $ 264, so,
if the employee shows more sales on daily profit then he can get more salary.

Company Benefit as per new pay structure they do not need to pay flat $ 18 per hour for 8
hours shift.

If the daily profit achieves $ 40, 000 then the employee get the salary $ 264 daily. If they
achieve more sales then their incentive also get more.

15. NPV = FV1 / (1+i)1 + …………… + FVn / (1 + i)n – C0

= 15,000,000 / (1 + .07)5 + 16,500,000 / (1.07)6 + 18,150,000 / (1.07)7

+ 19,965,000/ (1.07)8 + 21,961,500 / (1.07)9 – 30,000

= $ 26,557,759. 86

Since the figure is positive, DAS should spend their 30 million doing so adds about $ 26.6
million to the firm’s value.

17.

a. As the growth rate is more than interest rate the value of the firm will move to infinity
because of the limitation of this formula. One cannot simply find the firm’s value using this
formula when growth rate is greater than interest rate.

b. PVfirm = π [1+I / i - g] = 2.5 billion [1.08/0.05] = $ 54 Billion

c. PVfirm = π [1+I / i - g] = 2.5 billion [1.08/0.08] = $ 33.8 Billion

d. PVfirm = π [1+I / i - g] = 2.5 billion [1.08/0.11] = $ 24.5 Billion

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Assignment No.1 Submitted By : Abid ullah, Huang Zhe, Sarawanan

18. Incremental Revenue = $ 30,347,800 – 20, 540, 100

= $ 9, 807, 700

TV Commercials Costs = $ 9,045,700 – 6,100,000

= $ 2, 945, 700

Ad Development Labor = $ 3, 536,200 – 2,357,100

= $ 1,170, 100

Total Explicit Costs = $ 2, 945, 700 + $ 1,170, 100 = $ 4,124,800

Total Incremental Costs = Explicit + Implicit costs

= $ $ 4,124,800+ $ 6,000,000 = $ 10,124,800

Hence the Incremental cost is more than incremental revenue, so, the manager should not
launch the new project.

21. The revelry exists between Buyers and sellers of the shrimp. The shrimp consumers are
represented by American Seafood Distributor’s Association, and shrimp producers are
represented by the Southern Shrimp Alliance in the U.S. The sustainability of the industry
profit cannot be defined. The Brazil shrimp export is increased from 400 to 58000 tons in just
few year. It denotes that entry to shrimp market is very easy that’s why the producers are
entering the market day by day that increases the production of shrimp in the market that’s
lowering the cost of shrimp. The sustainability of the market can only be decided by the U.S
govt. to decided either to impose the 300% tariff request on market entry or not.

23. The incentive plan has only increased the sales as the manager was paying commission on
the basis of sales. That means that whether they increase the profit or not they should sale the
product. This basically shrinks the profit while increased the sales. The better option for the
manager was to pay commission on the basis of increasing the profit of the company. That will
increase the sales as well as the profit of the company.

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