Download 2002 - Purdue Agriculture

NAME: ________________________________________________
FNR 407
Examination No. 1, 2005
(5)
1.
If a firm competes in a very competitive market, what can we assume its marginal revenue will
be for the product or service it produces?
(5)
2.
For a specified production process explain why the portion of the marginal cost curve that lies
above the average variable cost would be the supply curve for a firm using that production
process.
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3.
Fill in the second column in the following table:
Total
output
12
15
16
16
14
10
10
Marginal
Output
XXXXX
Be certain to use the appropriate sign (+ or -) for each entry in the table.
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4.
If the total volume of pulpwood that a stand will yield at the end of a 30 year rotation is 120
cords per acre, what is the MAI for this stand in cords per acre?
(5)
5.
Because of the long time periods required to grow timber, what is the major cost incurred and
how is this cost reflected in net present value (NPV) calculations?
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NAME: ________________________________________________
(5)
6.
A consulting foresters calculated net present values for pulpwood prices from $20 to $16 per
cord for an even-aged stand of timber his client was considering purchasing. The discount
(interest) rate used was 5% (0.05). What price must this activity receive if the investor wants an
internal rate of return of 5%?
Price
$/MBF
20.00
19.00
18.00
17.00
16.00
(5)
(5)
7.
8.
NPV
$’s
5,000
2,000
250
-250
-4,000
Within the context of a single tree, what are the economic/financial implications of the tree
being both the thing producing the product (machine) and the product produced (output)?
A client asks you to analyze the financial benefits of converting an old field to timber managed
on a 30-year even-aged rotation. You go back to your office and estimate that the net present
value of this investment as of year zero is $300 per acre. While you are discussing this result
with your client she asks you to estimate the net present value as of year zero for a perpetual
series of 30-year rotations. Set-up the formula that would be used to make this calculation
assuming the client’s alternative rate of return is 5%.
NAME: ________________________________________________
(5)
9.
In the figure below if the current price is P1 would you expect this price to continue for very
long? What adjustments would occur by producers and consumers? Show on the graph what
you think the market equilibrium price would be.
P
Supply
curve
Demand
curve
P1
Q
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10. Write out a mathematical expression for the determination of net present value (NPV) using
summation notation where,
t - index over years, ranging from 0 to n
i – is interest rate
n – number of years
Rt – revenue at end of year t
Ct – cost at end of year t
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NAME: ________________________________________________
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11. What is the difference between a shift in a supply curve and a movement along a supply curve?
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12. For the situation shown in the graph below describe this firm’s profit level for each of the three
price levels shown.
$
Marginal cost
Total average
cost
P1
P2
P3
Q
(5)
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13. The Acme Lumber Company produces pallet lumber that it sells into a highly competitive
market. Its average sales price is $120 per MBF cash-and-carry on the dock at their mill. Its
fixed costs total approximately $15,000 per month. Its total variable cost is currently running at
$135 per MBF. Given the marginal cost curve below should Acme increase or decrease its
output?
NAME: ________________________________________________
(5)
14. What is the major cost incurred to produce timber and how is this cost reflected in the
estimation of soil expectation value?
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15. If a capital expenditure of $500,000 is expected to increase revenue by $100,000 per year and
the firm has a strict policy requiring a 3-year payback period, should the firm make this capital
expenditure? Explain your answer.
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16. Why don’t sunk costs matter when a firm is making decisions about how to improve their
financial performance by changing how they conduct their business?
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17. Average product is to MAI and _____________________ is to PAI.
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18. If a firm makes management decisions on the basis of the affect of a change in their operating
procedure on the bottom line, i.e. net revenue (profit), how can they justify making these
decisions based on equating the marginal cost and marginal benefit estimated for each change
being considered?
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19. If a firm is the only producer of a good or service, a monopolist,