MGT 5064 Week 1 Midterm Exam

MGT 5064 Week 1 Midterm Exam | Florida Institute Of Technology  | Assignment Help 

MIDTERM EXAM

 

Question 1

1. Cost-Benefit Analysis (CBA)is a policy assessment method that quantifies the value of policy consequences in monetary terms to all members of society.    

True  

False

Question 2

2. Compared to ex ante CBA, ex post CBA is more useful for making resource allocation decisions.   

True

False

 

Question 3

3. The use of NPV criterion leads to a more efficient outcome and not necessarily the most efficient outcome.  

True 

False

Question 4

4. Social surplus equals net benefits to the society.  

True

False

Question 5

5. When the price of a good increases, consumers buys less and when the price of a good decreases, consumers by more. Therefore, the demand curve is upward sloping.    

True

False

Question 6

6. The area under the demand curve and above the market price is called producer surplus which measures net benefits to sellers.

True  

False

 

 

Question 7

7. The Kaldor-Hicks criterion indicates that a policy of program should only be adopted if each member of the society will gain.    

True 

False

Question 8

8. (5 points) In making a decision about a proposed policy change, what major advantage does “pure” cost-benefit analysis offer over qualitative cost-benefit analysis? Given this advantage, why might qualitative cost-benefit analysis be used instead of “pure” cost-benefit analysis?

Your Answer:

The key advantage of pure cost-benefit analysis is that it is a straightforward assessment approach and helps to arrive at a conclusion based on objective evidence more quickly. While qualitative research requires a more rigorous approach that can take time if the data is not easily measurable.

For complicated decisions or issues, it is better to look at both the qualitative and quantitative aspects. For example, by taking feedback of client for any product comes under qualitative. Qualitative research is great tool for management for decision making. Customer likes dislikes, employee moral, brand aspect are example of qualitative research.  

The outcomes of qualitative analysis appear to be more uncertain, but can include additional evidence or inputs in the decision-making process, while the findings of pure cost benefit analysis are more definitive. Therefore, qualitative research can be important for gathering some of the more ambiguous, but still critical knowledge when solving complex problems.

 

Question 9

9. The following table, in which all figures are in million dollars, summarizes the result of recent cost-benefit analyses of five government projects:

Project Social Benefits   Social Costs         Net Social Benefits          Benefit-Cost Ratio

A             $400       $500                       

B               450         400                       

C               600         425                       

D               400          100                      

E                650         400                       

 

a. (5 points) Compute the net gains (net social benefits) and the benefit-cost ratio for each project. Write your answers in the space provided below. Use this format for writing your answers:

Net Social Benefits: Project A _____; Project B _____; Project C _____; Project D _____; Project E _____

Benefit-Cost Ratio: Project A _____; Project B _____; Project C _____; Project D _____; Project E _____

b. (3 points) If the government wanted to maximize social welfare, which one of the projects listed above should be undertaken? Briefly explain.

c. (2 points) What does the benefit-cost ratio indicate?

d. (3 points) If the government’s budget was constrained to $110 million, which project should it choose to maximize social welfare? (Assume that social costs and the government’s budgetary costs are equal).

Your Answer:

Ans: A

Project Social Benefits   Social Costs         Net Social Benefits          Benefit-Cost Ratio

A             400         500         -100       0.80

B             450         400         50           1.13

C             600         425         175         1.41

D             400         100         300         4.00

E              650         400         250         1.63

Ans: B:

Project D should be selected because it has a high net social benefit.

Ans: C:

The benefit-cost ratio indicates the percentage of benefit you will get from the cost

Ans: D

Project D should be selected because it has a high net social benefit ratio

 

Question 10

10. A county is considering building a composting facility to reduce food waste. Analysts have estimated the present values of the following over the expected useful life of the facility:

Composting Facility        

                Monetized Effect             Social CBA           Social CBA           Guardian             Spender

Category              (million dollars) National Standing            County Standing               County Standing               County Standing

Federal grant     2.0                                                          

Construction costs           2.5                                                          

Food waste collection containers and personnel (facility operators, food waste/ garbage collectors,        3.0                                                           

Collection fees from county residents    6.5                                                          

Facility operation and maintenance costs              2.2                                                          

Use value to county residents    10                                                           

Use value to non-residents         3.1                                                          

Salvage/ Scrap value       0.3                                                          

Net Benefits (million dollars)                                                                      

The federal grant is only available for this purpose. Maintenance and food waste collection will be done by a firm in the county.  Construction will be done by a firm outside the county.

a. (5 points) Assuming national-level standing, classify each item as benefit or cost and then calculate the social net benefits of the project.

b. (5 points) Assuming county-level standing, classify each item as benefit or cost and then calculate the social net benefits of the project.

c. (5 points) Assuming county-level guardian standing, classify each item as benefit or cost and then calculate the social net benefits of the project.

d. (5 points) Assuming county-level spender standing, classify each item as benefit or cost and then calculate the social net benefits of the project.

 

 Q.10 Answer.doc

 

Question 11

11. Show your solutions/ calculations for each question (not just the final answer).

Anna’s demand for good X is given by the following equation:

q = 10 - 2p + 0.0004I

where q is the quantity demanded at price p when Anna’s income is I. Anna’s income is currently  $100,000.

a. (3 points) At what price will Anna’s demand fall to zero?

b. (3 points) If the price of good X is $14, how many will be demanded by Anna?

c. (3 points) At a price of $14, calculate Anna’s price elasticity of demand for good X.

d. (4 points) In a scratch paper, draw a diagram showing the demand curve for good X and shade the consumer surplus region at a price of $14. Calculate consumer surplus. You do not need to submit your drawing.

e. (6 points) If the price of good X decreases to $12, how much consumer surplus is gained?

Your Answer:

Ans:

A. q = 10 - 2p + 0.0004I  ,         Q = 0 to solve for P.

0 = 8 - 2P +0.0004 * 100,000

2P = 8 + 40

2P = 48

P = $24

B.If the price of a good = $14

Q = 8 - 2 * 14 + 0.0004 * 100,000

Q = 8 - 28 + 40

Q = 20 units of good X will be demanded

Ans: C-

Elasticity = -2(14/20)

Elasticity = -1.4

Ans: D

The consumer surplus is the area of the triangle bounded by the area above the price and below the demand curve. Area of a triangle = 1/2 * Base * Height

Consumer Surplus = .=0.5*(20-0)*(24-14)

= .100

Consumer Surplus = 100

E. If the price increases to $12...

Q = 8 - 2(12) + 0.0004 * 100,000

Q = 24

Consumer Surplus = .5(24-0) 8 (24-12)

= .5 * 24 * 12

Consumer Surplus = 144

Gain in Consumer Surplus =144 - 100 = $44

 

Question 12

12. Go to CANVAS under 'Files' and open the pdf document "Demand and Supply". Use the linear demand and supply curves shown in the figure to answer the following questions:

a. (2 points) The economic value of the 5,000th unit is $_______, and the minimum price producers will accept to produce this unit is $ ________.

 

b. (7 points) When 5,000 units are produced and consumed, total consumer surplus is $ ________, and total producer surplus is $ _________. Show your work/ calculations.

 

c. (2 points) The net gain to society when 5,000 units are produced and consumed at the market price is $ __________, which is called ____________________________.

 

d. (4 points) In market equilibrium, total consumer surplus is $ _________________, and the total producer surplus is $ ___________________. Show your work/ calculations.

 

e. (1 points) The net gain to society created by this market is $ ___________________.

Your Answer:

A.The economic value of the 5,000th unit is $23, and the minimum price producers will accept to produce this unit is $13.

b.When 5,000 units are produced and consumed, total consumer surplus is $ 60,000, and total producer surplus is $ 22,500

Consumer Surplus = .5 * 5000 * (27 - 23) + 5000 * (23-13) = 60,000

Producer Surplus = .5 * 5,000 x (13-4) = 22,500

C. The net gain to society when 5,000 units are produced and consumed at the market price is $ 82,500, which is called Social Surplus

 

D. In market equilibrium, total consumer surplus is $35,000, and the total producer surplus is $80,000. Show your work/ calculations.

Consumer = .5 * 10000 * (27-20) = 35,000

Producer = .5 * 10,000 * (20 - 4) = 80,000

e.The net gain to society created by this market is $115,000.

 

3 / 3 pts

13. (3 points) Explain why budgets and expenditure statements are inadequate in cost analysis.

Your Answer:

Budgets don’t incorporate the fetched data for all fixings that are utilized in an intercession. When assets are as of now acquired or are included in another agency’s budget, they are not perceivable. Standard budget hones can mutilate the genuine costs of an fixing. Numerous times, budgets and consumption explanations charge the costs of major recovery as it were to the year in which the fetched was brought about. The costs of any specific intercession are frequently inserted in a budget or consumption explanation that covers a much bigger unit of operation. Most budgetary records speak to a arrange for how assets will be distributed instead of classifying uses after they have taken put.

 

Question 14

14. (3 points) Describe what a perfectly competitive market is.

Your Answer:

There are many buyers and sellers in perfectly competitive market. All sellers sell same products and no entry barriers. All customers know about product price.

 

Question 15

15. Consider a facility that has a 30-year life, a replacement cost of $1 million, and an interest rate of 6%.

a. (2 points) Calculate the annual cost of the facility.

b. (3 points) Calculate the annual cost of the facility using interest rates of 4% and 8%.

c. ( 2 points) To implement the project, a new equipment is purchased at $20,000 which has a useful life of 10 years. Using the annualization factor at 5% interest rate, what is the equipment’s annual depreciation cost?

Your Answer:

Ans: A

Useful Life-Year                30

Replacement cost            100000

Interest Rate     6%

Annual Cost        $ 7,264.89

Annual Cost of Facility - 7264.89

Note : Calculation is done with help of excel.

B: If Interest rate 4%

Useful Life-Year                30

Replacement cost            100000

Interest Rate     4%

Annual Cost        $ 5,783.01

Annual cost: $5783.01

If interest cost is 8%

Useful Life-Year                30

Replacement cost            100000

Interest Rate     8%

Annual Cost        $ 8,882.74

Annual Cost = $8882.74

C.

Useful Life-Year                10

Replacement cost            20000

Interest Rate     5%

Annual Cost        $ 2,590.09

Annual Depreciation: $2590.09