Author Question: A two-period project has the following probabilities and cash flows: Probability Cash flow ... (Read 98 times)

nautica902

  • Hero Member
  • *****
  • Posts: 591
A two-period project has the following probabilities and cash flows:
 
  Probability Cash flow
   Period 1: .25 500
   .50 600
   .25 700
 
   Period 2: .30 300
   .50 500
   .20 700
 
  The discount rate is 7, and the initial investment is 1,000. How much is the expected NPV of this project?

Question 2

All firms in a competitive industry have the following long-run total cost curve:
 
  C(q) = q3  10q2 + 36q
   where q is the output of the firm.
  a. Compute the long run equilibrium price. What does the long-run supply curve look like if this is a constant cost industry? Explain.
  b. Suppose the market demand is given by Q = 111  p. Determine the long-run equilibrium number of firms in the industry.



angrybirds13579

  • Sr. Member
  • ****
  • Posts: 344
Answer to Question 1

-20.

Answer to Question 2

a. Long run equilibrium is determined by (1 ) the minimum of the AC curves, and (2 ) the demand equation.
The AC is at a minimum where AC = MC:
Q = 5, AC = MC = 11
Therefore, the long run price will be 11 and each firm will produce 5 units.

b. The market quantity (from demand) is 100 and so 20 firms will exist in this market. The long run supply curve is flat at 11 because the price will always equal this due to free entry and exit of firms.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Warfarin was developed as a consequence of the study of a strange bleeding disorder that suddenly occurred in cattle on the northern prairies of the United States in the early 1900s.

Did you know?

Carbamazepine can interfere with the results of home pregnancy tests. If you are taking carbamazepine, do not try to test for pregnancy at home.

Did you know?

Asthma-like symptoms were first recorded about 3,500 years ago in Egypt. The first manuscript specifically written about asthma was in the year 1190, describing a condition characterized by sudden breathlessness. The treatments listed in this manuscript include chicken soup, herbs, and sexual abstinence.

Did you know?

The ratio of hydrogen atoms to oxygen in water (H2O) is 2:1.

Did you know?

According to the CDC, approximately 31.7% of the U.S. population has high low-density lipoprotein (LDL) or "bad cholesterol" levels.

For a complete list of videos, visit our video library