Solution Library

Capital Structure decisions in perfect capital markets

Question: In a perfect capital market, what advice would you give a corporate financial manager on making capital structure decisions? Justify your advice. How and why would your advice change as real world capital market imperfections are introduced?  Essay format. Word limit 750 words. Su ... Read More

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Effect of recession on the investment curve

Question: The financial crisis that hit the United States first and then the world economy starting in fall 2007 meant that the future prospects of many firms looked gloomy at best for some time. Comment on the effect of a recession on the investment curve (only) and on the level of savings, invest ... Read More

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Affect of falling domestic investment on trade surplus and net capital outflows

Question: How will a fall in domestic investment affect the trade surplus and net capital outflows in the domestic economy, the trade deficit and capital inflows in the rest of the world, investment in both economies, and the world real interest rate? Summary: Domestic investment can affect the ... Read More

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Crises in the banking sector and bank run

Question: Some developing countries have suffered banking crises in which depositors lost part or all of their deposits (in some countries there is no deposit insurance). This type of crisis decreases depositors’ confidence in the banking system. What would be the effect of a rumor about a ba ... Read More

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essay on Market imperfection associated with negative externalities

  Question: This assignment in Economics, deals with macro-economics. An essay on Market imperfection associated with negative externalities. According to Economics, perfect markets would require an “invisible hand” to allocate all the resources to be at the right place and at the ... Read More

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Application of Nash Equilibrium and Game Theory with examples

Question: Cineplex and AMC are two rival movie theatre chains. They must each decide whether to set an admission price of $10 or set an admission price of $12; of course, the number of movie goers (and thus their revenues) will depend both on the price they set as well as the price charged by their ... Read More

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Problem on utility function

  Consider Garfield’s utility function given as U(x1, x2) = x1x2, where x1is lasagna and x2 is "everything else". Suppose his allowance from Jon is m = $8and p1= $1 and p2= $1   (i) Find Garfield’s optimal choice of lasagna and everything else and illustrate your answer g ... Read More

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Marginal utility, indifference curve, demand curve

Question: Nancy is taking a course in Fairy Tales from Professor Grimm and another in Philosophy from Professor Par. In each course there will be two exams, a midterm exam and a final exam. In Professor Grimm’s course, Nancy’s grade will be determined by the minimum of her scores on the ... Read More

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Budget Line and Indifference Curves Problem

Question: Monica has been considering buying a mountain bike. Last month Monica had an income of $30,000. The bike’s price was $1000, the composite good price was $1, and she decided not to buy the bike.  This month Monica was surprised to get a $10,000 increase in income. The prices of ... Read More

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Problem on Marginal utility

Question: Max has a utility function U =√ x1x2 where x1 is litres of ice-cream and x2 is boxes of strawberries. The marginal utility of a litre if ice-cream is MU1 =0.5 √x2/ x1 and the marginal utility of a box of strawberries is MU2 =0.5 √x1 /x2. The prices of x1 and x2 are both ... Read More

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Problem on Marginal utility

Question: Ambrose consumes two goods, peanuts (x1 ) and a composite good (x2). He has a utility function U = 4 √x1 + x2. This means his MU1 = 2/ √x1 and his MU2 = 1 . The current prices are p1 = 0.5 per kilogram and. p2 = 1. His budget is $20 per month. (a) Write down Ambrose&rsqu ... Read More

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Marginal utility and demand

Question: a) Johnny consumes peanuts (x1) and a composite good (x2). His utility function is U = x1x2. His marginal utilities are MU1 = x2 and MU2 = x1. Johnny’s budget is $20 and the price of the composite good is $1. Derive Johnny’s demand function for peanuts. b) Ambrose consumes pe ... Read More

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