QRB Working with Numbers and Formulas Order of Operations McDonnell & Brue (Economics) Question 12 (p 129) in Ch 7 The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP for each decade jump. Indicate in each calculation whether you are inflating or deflating the nominal GDP data. YearNominal GDP, BillionsPrice Index 1996 = 100Real GDP, BillionsInflating or Deflating GDP? 1960$527. 422. 19$2,376. 75Inflating 1968911. 526. 29$3467. 10Inflating 19782295. 948. 22$4761. 30Inflating 19884742. 580. 22$5911. 87Inflating 9988790. 2103. 22$8515. 99Deflating Question 11 (p. 151) in Ch 8 a. If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? This year’s inflation rate is 10%. To calculate [(121-110) /110] x100 = 10% b. What is the “Rule of 70”? The “Rule of 70” is the time that it takes for money or investments to double. The process: divide 70 by the APR of any variable and get the approximate number of years for doubling that particular variable. c. How long would it take for the price level to double if inflation persisted at 2, 5, and 10 percent? % 70/2 = 35 years 5% 70/5 = 14 years 10% 70/10 = 7 years Question 2 (p. 370) in Ch 20 a. Graph the accompanying demand data listed below, and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. Attach graph to this sheet. Product Quantity Price Demanded $5 1 4 2 3 3 24 1 5 Total revenue data, top to bottom: $5; $8; $9; $8; $5. When demand is elastic, price and total revenue move in the opposite direction. When demand is inelastic, price and total revenue move in the same direction b.

What can you conclude about the relationship between the slope of a curve and its elasticity? Elasticity’s, top to bottom: 3; 1. 4; . 714; . 333. Slope does not measure elasticity. This demand curve has a constant slope of -1 (= -1/1), but elasticity declines as we move down the curve. c. Explain in a non-technical way why demand is elastic in the northwest segment of the demand curve and inelastic in the southeast segment. When the initial price is high and initial quantity is low, a unit change in price is a low percentage while a unit change in quantity is a high ercentage change. The percentage change in quantity exceeds the percentage change in price, making demand elastic. When the initial price is low and initial quantity is high, a unit change in price is a high percentage change while a unit change in quantity is a low percentage change. The percentage change in quantity is less than the percentage change in price, making demand inelastic. Question 7 (p. 411) in Ch 22 A firm has fixed costs of $60 and variable costs as indicated on the following table.

Complete the table (on p 412 and pasted below) and check your calculations by referring to Question 4 at the end of Chapter 23. Total ProductTotal Fixed CostTotal Variable CostTotal CostAverage Fixed CostAverage Variable CostAverage Total CostMarginal Cost* 0$600Total cost = TFC+TVC x TP 60AFC=TFC/TPAVC=TVC/TPATC=AFC+AVC$Mar. C = Current TC-Previous TC 1$60$45$105$60. 00$45. 00$105$45 2$60$85$145$30. 00$42. 50$72. 50$40 3$60$120$180$20. 00$40. 00$60. 00$35. 4$60$150$210$15. 00$37. 50$52. 50$30 5$60$185$245$12. 00$37. 00$49. 00$35 6$60$225$285$10. 0$37. 50$47. 50$40 7$60$270$330$8. 57$38. 57$47. 14$45 8$60$325$385$7. 50$40. 63$48. 13$55 9$60$390$450$6. 67$43. 33$50. 00$65 10$60$465$525$6. 00$46. 50$52. 60$75 * Marginal Cost should actually show on line between each product total, ie between 1 and 2, 2 and 3, etc. Here place MC in space of prior year’s product. Thus, MC change for 0 and 1 is placed in ) row – a 45. A. Graph total fixed cost, total variable cost, and total cost. Explain how the law of diminishing returns influences the shapes of the variable-cost and total-cost curves.

The Law of diminishing returns states that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. The total fixed cost is the same regardless of the output; the total variable costs will change with the level of output resulting in the total cost as the sum of the fixed cost and variable cost at each level of output. Over the 0 to 4 range of output, the TVC and TC curves slope upward. They reflect a decreasing rate due to the increasing minor returns.

The slopes curves will increase due to these diminishing marginal returns. Graph Insert B. Graph AFC, AVC, ATC, and MC. Explain the law of diminishing returns influences the derivation and shape of each of these four curves and their relationships to one another. Specifically, explain non-technical terms why the MC curve intersects both the AVC and ATC curves at their minimum points. Attach a graph to the sheet. AFC falls since a fixed amount covers a larger portion of the output. The U-shape indicates the areas are experiencing an increase followed by diminishing returns.

The ATC curve sums AFC and AVC vertically. The ATC curve falls when the MC curve is below it. The ATC rises when the MC curve is increases. The MC curve intersects the ATC curve at its lowest point. c. Explain how the location of each curve graphed in question 7b would be altered if (1) total fixed cost had been $100 rather than $60 and (2) total variable cost had been $10 less at each level of output. If TFC was higher, the AFC and ATC would have been higher as well. MC would be $10 lower during the initial unit of output; however, there would be no change durin the remaining period.

Marshall, McManus (Accounting) Exercise E3. 6 on p 84 in Ch 3 ROI analysis using DuPont model – see p 71 in chapter a. Firm D has a net income of $27,900, sales of $930,000, and average total assets of $465,000. Calculate the firm’s margin, turnover, and ROI. Margin: Net income/sales = . 03 or 3% Turnover Sales: Sales/Average Turnover = 2% ROI: net Income/Sales*Sal/Average Turnover 27,900/930,000*930,000/465,000 .03*2=6% b. Firm DE has net income of $75,000, sales of $1,250,000, and ROI of 15%. Calculate the firm’s turnover and average total assets.

Turnover = Sales/Average Turnover/Average Turnover = 1,250,000/x=y 15%=75,000/1,250,000/500,000=2. 5% $500,000 (ATA) c. Firm F has ROI of 12. 6%, average total assets of $1,730,159, and a turnover of 1. 4. Calculate the firm’s sales, margin, and net income. Sales: 1. 4=x/$1,730,159 Sales=$2,422,223 ROI = 12. 6% Margin = 9% Net Income: 21,800,007 ? Dependent & Independent Variables Horngren (Mgt Accounting) on using CVP analysis related to Independent and Dependent variables. 2-B2 Basic CVP Exercises on p. 75 Each problem is unrelated to the others. 1.

Given: Selling price per unit, $20; total fixed expenses, $5,000; variable expenses per unit, $15. Find break-even sales in units. 20x=5000 + 15x 5x=5000 x=1000 Units 2. Given: Sales, $40,000; variable expenses, $30,000; fixed expenses, $7,500; net income, $2,500. Find break-even sales in dollars. 7,500/. 75 = $10,000 3. Given: Selling price per unit, $30; total fixed expenses, $33,000; variable expenses per unit, $14. Find total sales in units to achieve a profit of $7,000, assuming no change in selling price. 30x=$33,000 + 14x+7000 16x=$40,000 x = 2,500 units 4.

Given: Sales, $50,000; variable expenses, $20,000; fixed expenses, $20,000; net income, $10,000. Assume no change in selling price; find net income if activity volume increases 10%. s =$55,000; v = $22,000; f = $20,000 Net Income = $55,000-$42,000 = $13,000 5. Given: Selling price per unit, $40; total fixed expenses, $80,000; variable expenses per unit, $30. Assume that variable expenses are reduced by 20% per unit, and the total fixed expenses are increased by 10%. Find the sales in units to achieve a profit of $20,000, assuming no change in selling price. 1,000