The faculty at the Smith School have started sharing their business contacts with the administration and students to in recruiting efforts. The hope is that these business contacts will provide

The faculty at the Smith School have started sharing their business contacts with the administration and students to in recruiting efforts. The hope is that these business contacts will provide job leads for students, potential students for the school and possibly donations to the school. The new dean of the Office of Career Management (OCM) surveyed MBA students, undergraduates, and administration officials to determine how much value they place on these faculty contacts. These three groups represents all the members of the Smith School who receive any value from these contacts. The survey revealed that full-time MBA students (as a whole) valued the senior faculty contacts at $100 each and the junior faculty contacts at $50 each. Senior faculty contacts are often higher up in an organization and thus potentially more valuable to students and administrators. The undergraduate students (as a whole) valued both junior and senior faculty contacts at $50 each. Finally, administrators (as a whole) valued senior faculty contacts at $50 each and junior faculty contacts at $30 each. The total number of senior faculty contacts available is 100. The total number of junior faculty contacts available is 50. The Smith School plans to make these contacts available to students and administrators at no charge. a. Draw a demand curve combining the demand curves of each of the three sets of consumers for all 150 contacts. b. Faculty claim that the opportunity cost of providing this contact information is $160 per contact. If faculty are paid $160 to provide these contacts, how many contacts should the Smith School purchase? N c. Suppose the administration asks for contributions from students who make use of the contacts in order to raise the money paid to faculty. Will enough money be collected to generate the optimal number of contacts? Explain. d. The companies that comprise the faculty contacts also value the distribution of their employee names to students. In the past this form of networking has been beneficial in finding the best new employees. These companies place a value of $50 on the distribution of each senior and junior faculty contact. Will the Smith School change the number of contacts it purchases given this new information? Explain. e. If the companies offered to contribute $25 per contact distributed by the Smith School, would this change your answer to part d? Explain. This problem set reviews your knowledge of multivariate regression analysis. It requires you to answer questions related to the article on the reading list “Evidence of a shift in the short-run price elasticity of gasoline demand” by J. Hughes, C. Knittel and D. Sperling. Some of you may also find the article “An introduction to regression analysis” by A. Sykes, also on the reading list, is a useful reference for the material. 1. (60) In section 2 the authors estimate the following demand equation: ln Gjt = β0 + β1 ln Pjt + β2 ln Yjt + εj + εjt where Gjt is per capita gasoline consumption in gallons in month j and year t, Pjt is thee real retail price of gasoline in month j and year t, Yjt is real per capita disposable income in month j and year t, εj represents unobserved demand factors that vary at the month level and εjt is a mean zero error term. a) (10) have the authors assumed about the price elasticity of demand when they wrote down the demand equation in this form? Remember the price elasticity of demand Ep = ∂G P . ∂P G b) (10) Go to table 1 in the appendix, now assuming the authors have obtained unbiased estimates of the parameters β0,β1 and β2 what do they mean? (eg. the coefficient β1 is -0.335 in the period 1975-1980, this represents…) c) (10) Interpret the values of the monthly unobserved demand factors (εj )? are these relative to? can you say about the yearly pattern of gasoline demand from these coefficients? d) (10) From the information presented in this table calculate the appropriate tstatistics for each of the β� s to test if it is different from 0. You will need the standard errors for each coefficient which are presented in brackets below the respective coefficient value in the table. For instance the standard error for the coefficient β1 in the period 1975-1980 is 0.024. e) (10) do the * next to some of the entries in the table indicate? How are they related to the t-statistics you calculated? f) (10) The table presents the adjusted R-squared statistic for the two regressions. does this number mean? If we calculated the unadjusted R-squared values, can we say whether these are larger or smaller than the adjusted Rsquared values of 0.84 and 0.94 in this table? 2. (30) In table 2 and table 3 in the appendix, two alternate specifications for the demand equation are compared with the original double-log model. a) (10) Under the linear specification for the period 1975-1980 the coefficient on the Price variable is -7.252. is the implied elasticity of demand, assuming the linear model, if during a June month per capita demand was 40 gallons, and price was $1.70? b) (10) is the implied elasticity of demand if during July demand is 5 gallons higher (due to a month specific effect) and price is the same? c) (10) Under the linear demand specification the demand elasticity varies within each period. Therefore the authors calculate an “average” elasticity of demand across each period. Do you think a time weighted or quantity weighted average is more reasonable and why? 3. (20) In section 3.3 the authors’ specif (20) In section 3.3 the authors’ specify a model where there is an interaction between price and income ln Gjt = β0 + β1 ln Pjt + β2 ln Yjt + β3 ln Pjt ln Yjt + εj + εjt 2 where β3 is the coefficient on the interaction term. a) (10) Derive the price elasticity of demand using this model specification. You should get Ep = β1 + β3 ln Yjt. would be the expression for the income elasticity of demand? b) (10) Interpret the values of β3 presented in table 7 in the appendix. do these tell you about the effect of income on the price elasticity of demand? How has this changed from the 1975-80 period to today? 4. (40) (14.444 students only) In section 3.2 the author’s find that when the simultaneity bias is accounted for in the period 2001-2006 the estimate for the elasticity of demand changes from -0.042 to -0.077 and this change is statistically significant. The authors’ conclude that this is encouraging and that the effects of simultaneity are small relative to other factors. Give a brief (1/2 a page max.) critique of the authors’ methodology for addressing the simultaneity bias. The Wilfrid Laurier University bookstore conducts annual surveys of its customers. One question asks respondents to rate the prices of textbooks. The wording is, “The bookstore’s prices of textbooks are reasonable.” The responses are as follows: 1. Strongly disagree 2. Disagree 3. Neither agree nor disagree 4. Agree 5. Strongly agree The responses for a group of 115 students were recorded. Graphically summarize these data and report your findings. The distinction between contracts that are covered by the UCC and those that are not is? To satisfy the UCC statute of frauds, a written agreement for the sale of goods must 8 As investment management companies develop global operations and competition between them becomes more intense, a need has developed for global performance standards to enable a more reliable comparison of managers’ performance. The developing standards include the following four elements: · Portfolio valuations at least monthly · Use of time-weighted returns for performance calculation · Accrual accounting for dividends (based on ex dividend dates) · Composite data should be provided which is the average of all funds managed by the investment management company to the same benchmark Explain the relevance of each of these standards in ensuring that the comparison provides a more accurate reflection of managers’ underlying performance. 7 You are the consultant to the trustees of a new and growing defined benefits pension scheme. The chairman of the trustees has just liquidated his own small personal portfolio. In view of continued volatility in world markets, he has recommended to his fellow trustees that the company scheme switches all its funds into bonds and cash. The trustees have asked you to comment on his recommendation. Discuss the main items which you would include in your response. 6 (i) A company has a current market capitalisation of £500m and has pursued a dividend policy which ensures that its cover remains a constant two times. The latest dividend was 25p per share and the share price last traded at £10. The latest annual report states that the average cost of capital for the company is 7% and that its net assets per share stand at £4. Calculate (a) the company’s historic PER (b) the EVA of the company (c) the value the market is currently placing on this EVA [6] (ii) Explain how the price earnings ratio of Chemical companies might be expected to compare with the ratio of companies in the Pharmaceutical sector over the course of a typical trade cycle. 5 (i) List the uses of investment indices. [4] (ii) In the recent past the Dow Jones Index has outperformed both the S&P 500 Index and the Russell 2000 Index. Describe the main features of these three indices and give possible reasons for the divergent performance. [4] (iii) A new UK index is being proposed which will be an arithmetically weighted index. The weights used in the index will be industry based using contributions of the industry to GDP e.g. if the life assurance industry represented 5% of GDP then the life assurance sector would have a 5% weight in the index. Comment on the proposed new index, and compare it with other commonly used UK indices. [2] (iv) An investment bank is considering the introduction of an index of commodity future prices, to use as a barometer of global industrial supply and demand. List three broad classes of commodities you would expect to be included in the index and comment on the factors you would consider when building the index. 4 After several years of poor investment performance the senior management of a small life insurance company is concerned about the ability of its in-house investment team to deliver the consistently good results which are required to remain competitive. The poor domestic equity performance has been attributed to the team’s tendency to favor small stocks which have value characteristics. The poor overseas performance has been blamed on a lack of resources. (a) State the broad options available to the company in respect of its investment operations. (b) Explain in detail the considerations involved in these options, and the investigations which need to be conducted in order to decide which option to pursue. 3 You are the Chief Investment Officer of a fund management organization. After a number of high profile financial failures and crises in financial institutions, the board of the organization has asked you to review investment risk controls within your operation. (i) Define four types of risk which will need to be considered. [2] (ii) Discuss the key points which you will need to examine in order to satisfy the board of directors. 2 A growing company has for many years run a defined benefit pension scheme for its employees. The company has now decided to close its existing defined benefit scheme to new entrants, and to establish a new defined contribution scheme, which all new employees would be offered the chance to join. Explain (a) the different investment considerations which apply to the two types of pension scheme, and (b) the long-term implications which the decision may have for the investment strategy of the continuing defined benefit scheme. 1 You are the Chief Investment Officer for a UK pension fund of a major company with assets in excess of £4bn. The assets are managed across multiple asset classes using a number of investment managers. Following the disposal by the company of one of its subsidiaries, the pension fund is required to pay a bulk transfer of approximately £200m to another pension fund in six weeks time. The amount to be paid is linked to the total return statistic for the FTSE All Share Index. Under the terms of the sale agreement, the pension fund is obliged to settle the payment by transferring stock representing a reasonable cross section of the fund, but both parties may by agreement vary the distribution. (i) Explain the investment risk for the pension fund which is introduced by the liability for this payment, illustrating your answer with a simple example. [4] (ii) Explain how derivatives may be used to mitigate this risk and list the problems which may arise. [4] (iii) Discuss the adjustments you would propose to a pro rata distribution for the benefit. Question: Jenny has just been offered an exciting position as CEO for a company called audio enterprises. The chairman of the board mark smith of audio enterprises called Jenny to offer her the position as CEO of his troubled audio equipment manufacturing organization. The first question Jenny asked was: “will the board give me the autonomy I need to turn this company around?” The answer was “yes!” and so Jenny accepted. Audio enterprises problems were so severe that the board was desperate for change and ready to give Jenny support she needed to save the organisation. Jenny signed on for her new position. She felt excited for her that she will finally have the autonomy to try out her theories about an empowered workforce? To turn the company around Jenny knew that her cost cutting was needed but what would this mean for productivity and empowerment? She found it interesting that management wages were well above industry average, yet productivity did not reflect this . Workers on the front line and upper management at audio enterprises were also divided into groups but cooperation at all levels was needed to achieve a turnaround. As her first task as the new CEO, Jenny would set up a meeting to ask her eight managers to take serious paycut with these pay cuts , 30 fort line workers could receive marginally sky higher wages which Jenny anticipates will boost their productivity. Jenny is hoping that with the promise of bonuses to share when things start to improve, that management would be incentivized to work harder to reap these rewards, though she fears good managers might leave. She will need to send a strong message to the entire organization that they rise or fall together. Jenny also knows that everyone will be looking at her own salary as an indication of whether she walks her talk. Jenny has a feeling that the next twelve months would be complete hell, with long hours. Bitter resistance from her managers and no guarantee of success. She will have little time for her family and will also have to give up her commitment to volunteering at the local community food bank. She wonders what might happen when she fails?. Many influences on audio enterprise are beyond her control and the organisation is in trouble . Jenny is torn while she believes she can turn things around, what will she discover when she gets inside, and what if the board undermines her? . Doesn’t she owe it to herself and her managers to be compensated at the highest possible level for the stress and risk they will be enduring for the next twelve months? is Jenny’s ethical dilemma ? Identify two key stakeholders and explain the possible short term and long term consequences of jennys decision for this key stakeholder? Analyse what Jenny would do if she used the utilitarian view of ethics? Analyse what Jenny would do if she used the moral rights perceptive? Analyse what Jenny would do if she used the justice perceptive (i) State and explain three assumptions underlying the theory of monopoly. (ii) Outline two possible advantages of monopoly as a market structure. (25 marks) (b) Iarnród Eireann (Irish Rail) is the state monopoly in the provision of rail transport in Ireland. It operates a system of price discrimination in setting some of its prices. (i) Explain the underlined term, giving one example as practiced by Iarnród Eireann. (ii) State and explain three conditions necessary for price discrimination to take place. (20 marks) (c) Using suitably labelled diagram(s), compare the long run equilibrium position of the monopoly firm with that of a perfectly competitive firm (assuming both operate under the same cost conditions) under the following headings:  Price and Output;  Profits;  Efficiency. (30 marks) [75 marks] Page 5 of 8 3. (a) With reference to the factor of production labour, explain the following terms:  Derived Demand;  Marginal Revenue Productivity;  Wage Drift;  Cyclical Unemployment. (20 marks) (b) (i) State and explain four factors which influence the efficiency of labour as a factor of production. Recently the Organisation for Economic Cooperation and Development (OECD) recommended that lower wages are necessary to restore stability to the Irish economy and that consideration should be given to reducing the National Minimum Wage over time. (ii) Outline one possible economic advantage and one possible economic disadvantage, to the Irish economy, of reducing the National Minimum Wage. (30 marks) (c) Ireland’s ‘Black Economy’ (underground economy) activity results in a loss of up to €6.1bn to the Exchequer annually, according to the economist Friedrich Schneider. (i) State and explain three economic effects of this activity in Ireland. (ii) Outline two economic measures the Irish Government could take to discourage this activity. (25 marks) [75 marks] 4. (a) “Next year, almost half of income earners will pay no income tax and 4% of income earners will pay almost half of the total tax yield”. (Minister for Finance, Budget Statement, 9th December 2009). The above situation is occurring at a time when taxation revenues have fallen considerably and there is a debate about the need to broaden the tax base. (i) Explain briefly the underlined terms. (ii) Discuss the characteristics of a good taxation system. (30 marks) (b) The Irish government introduced a carbon tax in its latest Budget (9th December 2009). (i) Is this tax an example of a progressive or a regressive tax? Explain your answer. (ii) State and explain two possible economic advantages and two possible economic disadvantages of the new carbon tax. (25 marks) (c) At end of December 2008 the Irish National Debt amounted to approximately €50.4bn and at the end of December 2009 it was approximately €75bn. State and explain four problems associated with the Irish National Debt. (20 marks) [75 marks] Page 6 of 8 5. (a) Given that Gross National Product at Current Market Prices is €200m, price subsidies €5m, depreciation €12m and indirect taxes €30m. Calculate the value of each of the following: Show all your workings. (i) Gross National Product at Factor Cost; (ii) Net National Product at Factor Cost/National Income. (20 marks) (b) Explain the economic effect which each of the following could have on the level of GNP at Market Prices: (i) a reduction in the general level of VAT; (ii) a reduction in the subsidies paid to farmers. (20 marks) (c) (i) Outline the main uses of National Income Statistics. (ii) State and explain four reasons why care should be taken when using National Income Statistics as a measure of economic performance of a country. (35 marks) [75 marks] 6. (a) It has been suggested that the main commercial (retail) banks in Ireland should be nationalised. (i) Explain the underlined terms. (ii) Outline two possible economic arguments for and two possible economic arguments against the nationalisation of the banks. (30 marks) (b) (i) State and explain what you consider to be the three most important economic aims of the Irish Government. (ii) Outline two examples of possible conflicts between government economic aims/objectives. (25 marks) (c) The economist Milton Friedman was regarded as one of the major thinkers of the monetarist school of economic thought. Outline four features of ‘Monetarism’. Part 2.A
Which functions represented in Figure 1 are convex (select one or more)?
a) f(x) = 0.5×2 -5
b) g(x) = 0.2513
c) h(x) = -2 log(r + 5)
d) ((x) =0.512 – 2sinc – 5
Part 2.B
Based on your answer to Part A, which functions out of the list below are convex?
a) f(x) + g(x)
b) mh(I)
c) 2.5f (x) + h(z)
d) max{ f(x)/3, h(z)/7}
e) -1(x)
(a) f(x) = 0.512 -5
(b) g(z) = 0.2513
(c) h(x) = -2 log(x + 5)
(d) ((x) = 0.5×7 – 2sinx – 5
Figure 1: Four real functions of one variable.

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