Answer and Explanation:
The computation is shown below:
net income is
= sales × profit margin
= $2,060,000 × 0.06
= $123,600
And,
return on assets is
= net income ÷ total assests
= $123,600 ÷ $970,000
= 12.74%
In this way these two things should be calculated
and, the same should be considered
A monopolist desiring to increase its profit has just discovered that lowering its price and selling more output yielded the desired result. Profit increased. Based on this, one can conclude that the marginal cost of production is _____ the marginal revenue from production.
Answer:
Less than
Explanation:
The marginal cost of production is that change in the total production cost when an extra unit is produced. While the Marginal revenue from production is the additional profit realized from production due to the sale of an extra unit.
Generally, When, the marginal cost is less than the marginal revenue, the company's production is low and should increase its output to maximize profit.
A monopolist has to its price in order to sell due to marginal revenue not equalling to price, the monopolist maximizes profits by ensuring its marginal revenue and its marginal cost are the same. Producing when Price is greater than marginal cost makes a monopolist realize profits.
The model of aggregate demand and aggregate supply a. is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. b. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships. c. is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model. d. is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted.
Answer:
b. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships
Explanation:
Here The two models are different. But it shows the similar idea, also the variables that are determined are totally different. The individual markets should be equipped with the given sources while on the other hand the overall economy could be subsituted the resources inside the market
Therefore the option b is correct
40. Giả sử tỷ giá giao ngay của EUR là 0.9 USD/EUR . Tỷ giá giao ngay dự kiến một năm sau là 0.85 USD/EUR, % thay đổi của tỷ giá giao ngay là :
Answer:
Sorry I can't understand
When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry
Answer:
debit Merchandise Inventory, credit Accounts Payable.
Explanation:
In the case when the merchandise is purchased on account, so the following journal entry is recorded
Merchandise inventory Dr XXXXX
To account payable XXXXX
(Being merchandise inventory purchased on account)
Here merchandise inventory is debited as it increased the assets and credited the account payable as it also increased the liabilities
A potential investor in Cristian's company wants to know how much money was paid in dividends in the last reporting period. What type of financial statement should he look at?
A. Statement of changes in equity
B. Balance sheet
C. Cash flow statement
D. Income statement
Answer:
A. Statement of changes in equity
Explanation:
Financial statements can be defined as a document used for the formal communication or disclosure of financial information and statements to present and potential users such as investors and creditors. These includes balance sheet, statement of retained earnings and income statement.
Basically, the type of financial statement a potential investor should look at is the statement of changes in equity.
The statement of changes in equity provides an information about the reconciliation of the opening and closing balances of equity with respect to a company at a specific period of time.
Tomlinson Packaging Corporation began business in 2018 by issuing 30,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2019 balance sheet, Tomlinson Packaging would report:___________
a. Common Stock of $100,000
b. Paid-In Capital of $150,000
c. Common Stock of $200,000
d. Common Stock of $160,000
Answer:
d. common stock of $150,000.
Explanation:
First and foremost, upon issuance of stocks, the common stock account would be credited with the total par value of the shares issued as shown below:
total par value=par value per share*shares issued
total par value=$5*30,000
total par value=$150,000
The paid-in capital would be credited with the total amount the cash proceeds from the share issue exceeds the total par value
total cash proceeds=$8*30,000
total cash proceeds=$240,000
paid-in capital=$240,000-$150,000
paid-in capital=$90,000
The correct option is the common stock of $150,00, except that the number of shares issued is 20,000,hence, the common stock of $100,000 would be correct
Check a similar question below to drive home my point:
Kerwin Packaging Corporation began business in 2010 by issuing 30,000 shares of $5 par common stock for $8 per share and 10,000 shares of 6%, $10 par preferred stock for par. At year-end, the common stock had a market value of $10. On its December 31, 2011 balance sheet, Kerwin Packaging would report:
a. common stock of $300,000.
b. paid-in capital of $150,000.
c. common stock of $240,000.
d. common stock of $150,000.
Which of the following considerations is related to sociocultural environment
Answer:
You didn't provide anything for me to choose from, so I can't give you an answer.
L. Bowers and V. Lipscomb are partners in Elegant Event Consultants. Bowers and Lipscomb share income equally. M. Ortiz will be admitted to the partnership. Prior to the admission, equipment was revalued downward by $8,000. The capital balances of each partner are $96,000 and $40,000, respectively, prior to the revaluation.
a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for Ortiz’s admission under the following independent situations:
1. Ortiz purchased a 20% interest for $20,000.
2. Ortiz purchased a 30% interest for $60,000.
Answer: See attachment and explanation
Explanation:
1. Ortiz purchased a 20% interest for $20,000.
Total capital after the admission of the partner will be:
= ($96000 - $4000) + ($40000 - $4000) + $20000
= $92000 + $36000 + $20000
= $148000
The share of new partner in the capital structure will be:
= Total capital × Interest of new partner
= $148000 × 20%
= $29600
There'll be a deficiency in the profit which the existing partner contributes to and this will be:
= $29600 - $20000
= $9600
Then each partner shares =$9600/2 = $4800
2. Ortiz purchased a 30% interest for $60,000.
Total capital after the admission of the partner will be:
= ($96000 - $4000) + ($40000 - $4000) + $60000
= $92000 + $36000 + $60000
= $188000
The share of new partner in the capital structure will be:
= Total capital × Interest of new partner
= $188000 × 30%
= $56400
Since the share is less than the amount of $60000 bought in, the existing partner will be compensated in the amount of ($60000 - $56400) = $3600. Therefore each partner gets $3600/2 = $1800
Check attachment for the journal entries.
Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, be cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.
Required:
What's the economic profit generated by Extreme Gaming in the first year?
Answer:
$160,000
Explanation:
Economic profit = accounting profit - implicit cost
Accounting profit= total revenue - explicit cost
Total revenue =price x quantity sold
total revenue = 75 x 11,000 = 825,000
Explicit cost includes the amount expended in running the business.
explicit cost = 55 x 11,000 = 605,000
Accounting profit = 825,000 - 605,000 = 220,000
Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives
Harvey's implicit costs = amount he would have earned in the university + income from entrepreneurial talent + interest income
Interest income = 0.1 x 100,000 = 10,000
10,000 + 45,000 + 5,000 = 60,000
Economic profit =220,000 - 60,000 = 160,000
You have decided to start saving up to buy a house. You plan on withdrawing $25,000 at the end of year 4 for a down payment, $18,000 at the end of year 5 and again $18,000 at the end of year 6 for upgrades, and $20,000 at the end of year 7 to add a pool. How much do you need to deposit today into an account with an annual interest rate of 1.25%
Answer:
$75,745.56
Explanation:
In order to determine how much to deposit today, calculate the present value of the cash flows
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 - 3 = 0
Cash flow in year 4 = $25,000
Cash flow in year 5 = $18,000
Cash flow in year 6 = $18,000
Cash flow in year 7 = $20,000
I = 1.25 %
PV = $75,745.56
To find the PV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Kathy Elliot has decided that she will start an internet company to sell reliable used cars to customers Nationwide she has decided to use the sole proprietorship business format. Elliot's next step is to write a formal _____ before she applies for a business loan
Answer:
business plan
Explanation:
g A monopoly is a market that has Group of answer choices Only one buyer. Only one seller. Many sellers who sell differentiated products. Many sellers who sell identical products.
Answer:
Only one seller.
Explanation:
A monopoly is a market structure which is typically characterized by a single-seller (one seller) who sells a unique product in the market by dominance. This ultimately implies that, it is a market structure wherein the seller has no competitor because he is solely responsible for the sale of unique products without close substitutes.
Also, a monopolist refers to any individual that deals with the sales of unique products in a monopolistic market.
For example, a public power supply company is an example of a monopoly because it serve as the only source of power supply to the general public in a society.
A public power company refers to a company that provides power (electricity) utility to the general public of a society.
In conclusion, a monopoly is a market that has only one seller.
LivWell Biotechnology Company has four locations in California. You work as a marketing specialist at the oldest and southernmost location. Your colleagues at the three other locations get an hour off each day to work out because there are workout facilities at each of their locations. You know that you make a little more money than they do, but after measuring the cost of stopping off at the gym on your way home each evening, you realize that your extra compensation does not cover the cost of the membership. You are keeping tabs on marketing positions that may open at the company's other sites. Equity theory suggests that you are motivated to bring a sense of fairness to what you perceive as an inequality.
a. True
b. Fasle
Answer:
b. Fasle
Explanation:
Saying that, according to equity theory, I would be motivated to bring a sense of fairness to what I perceive as an inequality implies that I am trying to convince myself that the inequality is not such, and that´s not the case. If I´m looking to relocate to another place with a better input and output ratio, it means that I recognize the situation as unfair, which is my sense of fairness, meaning what I think about the situation and how fair it is.
In Adams' Equity Theory model, the sense of fairness that influences motivation is built by a person based on the comparison between their input and output ratio with the ratio of others considered to be in a similar situation.
Silky Smooth has an EPS of $2.93 per share and a profit margin of 6.3 percent. If the Price to Sales ratio of the industry is 1.56 times, what is a good estimate for Solky Smooth's stock price
Answer:
$88.16
Explanation:
The computation of the estimation of the stock price is given below:
Net profit ÷ sales = 6.3%
And,
Net profit ÷ Number of shares = $2.93
So,
6.3% of sales ÷ Number of shares = $2.93
Sales ÷ Number of shares = 46.51
Now PS ratio is = Price ÷ sales
= 1.56 × 46.51
= $88.16
Portfolio Weights If you own 725 shares of Air Line Inc at $42.9, 340 shares of BuyRite at $56.15, and 440 shares of Motor City at $10.15, what are the portfolio weights of each stock?
Answer:
Explanation:
Answer: the portfolio weights of each stock Air Line Inc, BuyRite and Motor City are 0.5690, 0.3493 and 0.0817 respectively.
Explanation:
The total portfolio weight is given as
= 725 shares × $42.90 + 340 shares ×$56.15 + 440 shares × $10.15
=31,102.5 + 19,091 +4,466
=$54,659.5
Now the weight of each stock are as follows
For Air line inc
= 725 shares × $42.90 ÷$54,659.5
=31,102.5/54,659.5
= 0.5690
For Buyrite
= 340 shares × $56.15 ÷ $54,659.5
= 19,091 / 54,659.5
=0.3493
For Motor city
= 440 shares ×$10.15 ÷ $54,659.5
=4,466 /54,659.5
=0.0817
Casino Inc. is expected to pay a dividend of $3 per share at the end of year-1 (D1) and these dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 18%, what is current value of the stock today
Answer:
$25
Explanation:
Calculation to determine what is current value of the stock today
Using this formula
P0= Div1/(r - g)
Let plug in the formula
P0= (3/(0.18 - 0.06))
P0= $25
Therefore current value of the stock today is $25
At $180, a firm can sell 18,100 stereo earphones (3.5 mm for android). These are premium earphones, guaranteed for 5 years. At this price, elasticity is estimated at 0.6. What is the change in total revenue ( or -) if the firm drops price by 11%
Answer:
revenue falls by $167,005.08
Explanation:
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
Price elasticity of demand = percentage change in quantity demanded / percentage change in price
When elasticity of demand is less than 1, demand is inelastic
Demand is inelastic if a small change in price has little or no effect on quantity demanded.
change in percentage demanded when price falls by 11% = 11% x 0.6 = 6.6%
Quantity demanded increases by 6.6%
Increase in quantity demanded = 18,100 x 1.066 = 19,294.60
decrease in price = 0.89 x $180 = $160.20
change in total revenue
(180 x 18,100 ) - ( $160 .20 x 19,294.60)
= 3,258,000 - 3,090,994.92
=167,005.08
Equipment costing $b0000 was destroyed when it caught on fire. At the date of the fire, the accumulated depreciation on the equipment was $100000. An insurance check for $300000 was received based on the replacement cost of the equipment. The entry to record the insurance proceeds and the disposition of the equipment will include a
a. credit to the Equipment account of $160000.
b. credit to the Accumulated Depreciation account for $100000.
c. gain on disposal of $140000.
d. gain on disposal of $40000.
Answer: c. gain on disposal of $140000.
Explanation:
The cost of the equipment is $260,000.
When the fire occurred, the book value of the equipment was:
= Cost of equipment - Accumulated depreciation
= 260,000 - 100,000
= $160,000
A check of $300,000 was received from insurance. The gain on disposal is:
= Replacement cost - book value
= 300,000 - 160,000
= $140,000
This amount will be credited to the Gain on Disposal account because an increase is credited.
Match the term with its beliefs about the millenium.
a. The millennium represents the whole of the last days; we are in it now.Satan has already been defeated and bound by the death and resurrection of Christ. He is still active, but he can do nothing to thwartGod's purposes. Christians who have died already reign with Christ in heaven.
b. Christ will return before the millennium. He will raise dead Christians tolife again and they will reign with him on earth. Satan will have no power until the very end of this period when he will gather together allthose who still resist Christ's rule. They will then be destroyed in a finalbattle, and the end will come.
c. The millennium is the time immediately before the second coming: he will return after it. This "millennial age" will be a period of peace and righteousness in which more and more people will become Christians and the world will grow more godly.
1. Premillenialism
2. Postmillennialism
3. Amillennialism
Answer:
a is premillenialism
b is postmillenialism
c is amillenialism
Explanation:
for a, the answer to this question is premillinialism. this is the belief that Jesus is going to come back to this earth phsyically. It can aslo be referred to as the second coming of Jesus christ. And he would come before the millenium
1. The journal entry to recognize depreciation on machinery would include a debit to Factory Overhead. debit to Accumulated Depreciation. credit to Factory Overhead. None of these choices are correct. 2. The journal entry to record the transfer from work in process to finished goods would include a debit to Work in Process. Finished Goods. Cost of Goods Sold. None of these choices are correct.
Answer:
1. The journal entry to recognize depreciation on machinery would include
= None of these choices are correct.
2. The journal entry to record the transfer fro work in process to finished goods would include a debit to
= Finished Goods.
Explanation:
a) The correct journal entry is a debt to Depreciation on Machinery and a credit to Accumulated Depreciation on Machinery. However, when the Depreciation is being transferred to Work in Process, the debit goes to Work in Process with the credit going to the Depreciation on Machinery account.
b) The corresponding credit entry is a credit to Work in Process.
The cost to produce was $20 per unit in 2019. During 2020, it has increased to $23 per unit. In 2020, Supplier Company has offered to supply for $18 per unit. For the make-or-buy decision:_____.a. incremental costs are $2 per unit.
b. differential costs are $7 per unit.
c. net relevant costs are $2 per unit.
d. incremental revenues are $7 per unit.
Answer: Differential cost is $5 per unit
Explanation:
Differential cost is the extra cost that the company would incur if they made the product themselves versus if they bought it from an outside supplier.
Differential cost is therefore:
= Cost to produce internally - Cost from supplier
= 23 - 18
= $5
likely
Kamal made a scale drawing of a house. The scale of the drawing was 7 inches : 3 feet. A rug in the hallway is 6 feet long in real life. How long is the rug in the drawing?
Answer:
14 inches
Explanation:
Given that :
Scale drawing ; 7 inches = 3 feets ;
This means that 7 inches on the drawing equals 3 feets in real life
With this, we can calculate the length of scale drawing for 1 feet long object.
7 inches = 3 feets
x = 1 feet
Cross multiply :
3x = 7
x = 7/3 inches
Therefore, for a 6 feet long rug in real life, the length of drawing will be :
1 Feet = 7/3 inches
6 feets = (7/3 * 6) inches
(7/3 * 6) = 42 / 3 = 14 inches
Escareno Corporation has provided its contribution format income statement for June. The company produces and sells a single product.
Sales (8,400 units) $ 764,400
Variable expenses 445,200
Contribution margin 319,200
Fixed expenses 250,900
Net operating income $68,300
If the company sells 8,200 units, its total contribution margin should be closest to:________.
a. $301,000
b. $311,600
c. $319,200
d. $66,674
Answer:
b. $311,600
Explanation:
Calculation to determine what total contribution margin should be closest to:
Using this formula
Contribution margin per unit=Current contribution margin ÷ Current sales in units
Where,
Contribution margin per unit
=$319,200 ÷ 8,400
Contribution margin per unit= $38
Now let determine the total contribution margin
Total contribution margin= 8,200 × $38
Total contribution margin=$311,600
Therefore total contribution margin should be closest to:$311,600
Cash equivalents by definition a.are a comparison of cash and liabilities. b.will be converted to cash within one year. c.are expected to be converted to cash within three months. d.are long-term investments.
Answer: c.are expected to be converted to cash within three months
Explanation:
Cash equivalents refers to the total value of cash on hand which consist of items that are similar to cash. It should be noted that cash equivalents are typically current assets and are expected to be converted to cash within three months.
Examples of cash equivalents include money market funds, treasury bills, Commercial paper, etc.
On July 1, 2021, Clearwater Inc. purchased 9,300 shares of the outstanding common stock of Mountain Corporation at a cost of $213,000. Clearwater will have significant influence over the financial and operating policies of Mountain. Mountain had 31,000 shares of outstanding common stock. Assume the total book value and fair value of identifiable net assets is $660,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021:
Dividends declared and paid, Jan. 1–June 30 $11,700
Dividends declared and paid, Jul. 1–Dec. 31 $11,700
Net Income, January 1–June 30 $13,700
Net Income, July 1–December 31 $17,700
Required:
a. Prepare the entry to record the original investment in Mountain.
b. Compute the goodwill (if any) on the acquisition.
c. Prepare the necessary entries (other than acquisition) for 2021 under the equity method.
Answer and Explanation:
1. The journal entry is given below:
Investment in Mountain $213,000
To Cash $213,000
(Being the original investment is recorded)
Here the investment is debited as it increased the assets and credited the cash as it decreased the assets
2.
The goodwill is
Purchase price $213,000
Less : Fair value of assets purchased (30%of $660,000) $198,000
Goodwill Purchased (difference) $15,000
3.
Cash (30% × $11,700) $3,510
To Investment in Mountain $3,510
(being cash is recorded)
Investment in Mountain (30% 17,700) $5,310
To Investment Revenue $5,310
(Being investment is recorded)
Required: a. Compute gross profit, the goods available for sale, and the cost of goods sold for the merchandiser. Hint: Not all information may be necessary. b. Use the above information from a service company and from a merchandiser to compute net income.Kleiner Merchandising CompanyAccumulated depreciation $ 700Beginning inventory 10,000Ending Inventory 6,000Expenses 1,950Net Purchases 11,900Net Sales 19,500Krug Service CompanyExpenses $ 8,400Revenues 24,000Cash 650Prepaid rent 660Accounts payable 200Equipment 2,200
Answer:
A.
a. Good Available For Sale $21,900
b. Cost of goods sold $15,900
c. Gross profit $3,600
B. Net income for merchandise company $1650
Net income for service company $15600
Explanation:
A.Compution for gross profit, the goods available for sale, and the cost of goods sold for the merchandiser.
a. Good Available For Sale
Using this formula
Good available fro sale = Beginning inventory + Net purchase
Let plug in the formula
Good available fro sale = $10,000 + $11,900
Good available fro sale = $21,900
b. COST OF GOODS SOLD
Using this formula
Cost of goods sold = Goods available for sale - Ending inventory
Let plug in the formula
Cost of goods sold= $21,900 - $6000 =
Cost of goods sold= $15,900
c. GROSS PROFIT
Using this formula
Gross profit= Sales - COGS
Let plug in the formula
Gross profit = $19,500 - $15,900
Gross profit= $3,600
b.Computation for net income
Net income for merchandise company = Gross profit - Expenses = $3,600 - $1,950 = $1,650
Net income for service company = Revenue - Expenses = $24,000 - $8,400 = $15,600
You wish to sell short 100 shares of XYZ corporation stock. If the last two transactions were at $34.10 followed by $34.15, you only can sell short on teh next transaction at a price of
Answer: b. 34.15 or higher
Explanation:
Short sales refer to the sale of borrowed stocks in anticipation that the stock price of the underlying stock will fall. This will then enable you to make a profit by buying the cheaper shares and giving it back to the entity you borrowed from thereby making a profit.
With short sales, the price is usually upward trending so will normally increase from the last price. As the last price here was $34.15, that would be the likely minimum for the next sale.
This means that the next sale will either be at a price of $34.15 or a price higher than that.
3. If nominal GDP and real GDP both drop by 10 percent, then the GDP deflator Question 3 options: also rises by 10 percent rises by about 20 percent falls by 10 percent is unchanged
Answer: unchanged
Explanation:
The formula for calculating the GDP price deflator is:
= (Nominal GDP / Real GDP) × 100
Let's assume that the nominal GDP and the real GDP is $100 million. Then if they drop by 10%, they will both be $90 million, then the deflator will be:
= (90m / 90m) × 100
= 100
Therefore, the GDP deflator will be unchanged.
1. Susie Ques Inc., a company that produces and sells a single product, has provided its contribution format income statement for October: Sales (6,200 units) $136,400 Variable expenses $80,600 Contribution margin $55,800 Field expenses $48,700 Net operating income $7,100 If the company sells 5,800 units, its total contribution margin should be how much money
Answer:
52,200
Explanation:
Calculation to determine total contribution margin
First step is to calculate the contribution margin per unit
Contribution margin per unit=($136,400/6,200 )-($80,600/6,200)
Contribution margin per unit= $22 per unit- $13 per unit
Contribution margin per unit = 9
Now let determine the total contribution margin
Total contribution margin=5,800 x 9
Total contribution margin = 52,200
Therefore total contribution margin should be $52,200
Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:
Willingness to Pay
(Dollars)
Van Carlos Felix Larry
First film 10 9 6 3
Second film 9 7 4 2
Third film 8 5 2 1
Fourth film 7 3 0 0
Fifth film 6 1 0 0
Within the dorm room, the showing of a movie____a public good.
If it costs $8 to rent a movie, the roommates should rent____movies in order to maximize the total surplus.
Suppose the roommates choose to rent the optimal number of movies you just indicated and then split the cost of renting equally This means that each roommate will pay____.
Complete the following table with each roommate's total willingness to pay for this many movies and the surplus each person obtains from watching the movies.
Total Willingness to Pay Consumer Surplus
Roommate (Dollars) (Dollars)
Carlos
Felix
Larry
Raphael
In order to split the cost in a way that ensures that everyone benefits, the cost could be divided up based on the benefits each roommate receives. The practical problem with this solution is that each roommates has an incentive to____the value of the movies to him. Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally.
Answer:
See the five answers below.
Explanation:
The roommates are debating how many movies they should watch.
This is the constraint; given that they have to pay to rent each movie.
PART (A)
Since their dormitory room is the 'cinema', meaning that it's just going to be 4 of them and a private good that they'll pay for; then the showing of a movie is not a public good!
Public goods are those general utilities usually provided by governments, for their citizens; e.g. public defense, clean drinking water, good roads, etcetera.
PART (B)
Given the 'willingness to pay' constraint, we need to find the optimal number of movies they can watch. It costs $8 to rent a movie, no matter how interesting it is or how much satisfaction the viewers derive from it. So the cost of the 1st film = the cost of the 2nd film = the cost of the 3rd film = the cost of the 4th film = the cost of the 5th film.
To get the total amount they're willing to pay for all 5 movies, sum up!
(10+9+6+3) + (9+7+4+2) + (8+5+2+1) + (7+3+0+0) + (6+1+0+0)
KEY: This arrangement should remind you of the law of diminishing marginal utility. The more movies they watch in one sitting or over a weekend, the less satisfaction they derive from the intangible commodity. Hence, the less they are willing to pay for more of the commodity.
So the sum is 28 + 22 + 16 + 10 + 7 = 83
Now to get the number of movies they should rent if they wish to maximize their total spending, divide the total willingness to pay by the cost for a movie:
83/8 = 10.375
Rounding up to the nearest whole number or in reality, that's 10 movies.
PART (C)
Suppose the roommates choose to rent this optimal number of movies - which is higher than the intended number of movies - and then split the cost equally, what will each roommate pay?
Here, we will use the approximated value 10.
10movies x $8 = $80
Splitting the cost equally, divide by 4
$80 ÷ 4 = $20
This figure is just in obedience to the question's requirements which says the bill must be shared equally. In actual fact, some of the four roommates don't have a purchasing power or willingness that is up to $20! That's Felix and Larry.
PART (D)
Complete the given table by inputing each roommate's total willingness to pay for the 5 movies and the surplus each person obtains from watching the movies. Remember to assume that Van is the same person as Raphael.
Also, total cost for 5 movies is 8 x 5 = $40
Dividing this by 4, you have $10 per roommate. So a surplus would be the excess of each roommate's TWTP over $10.
TWTP($) CS($)
VAN 40 30
CARLOS 25 15
FELIX 12 2
LARRY 6 -4
PART (E)
If the cost is divided up based on the benefits (remember how the price for movie was static despite the movie and satisfaction received by each viewer? That's about to change) or satisfaction each roommate receives, the practical problem with this 'solution' is that each roommate has an incentive to reduce the value of the movies to him; and this can only be measured by the efficient number (the number that rates the value each roommate derives from each movie). In this case, the incentive is the window given to each roommate to 'not tell the truth' about their level of satisfaction from watching each movie, because that would mean a higher bill for the individual.
KUDOS!
