# Finance quiz

Finance quiz

Project description
This is a finance quiz, the questions are in the uploaded file.

6.[1 point]&nbsp;&nbsp; &nbsp;Suppose that you are hired as the manager of the Downtown Health Spa in Eugene.&nbsp; Assume that you estimated the average customer’s

monthly demand curve for visiting the health spa as&nbsp; Q = 100 – 0.5 P, and the total cost of operation as TC= 6Q, where Q is the number of visit per

month, and P is the fee per visit.&nbsp; Suppose that currently this health spa charges \$10 per-visit fee, and a \$40 per-month membership fee.&nbsp; Suppose

that as the manager’s salary, you receive 20% of spa’s monthly profits, suggest a pricing strategy that will increase your salary.&nbsp; Please show your

calculations.

7.[1 point]&nbsp;&nbsp; &nbsp;The owner of a monopoly firm which produces and sells computers hires you as the manager of the firm.&nbsp; He asks your opinion on how

much to mark up the price over marginal cost (MC) given that the firm’s objective is to maximize its profits.&nbsp; The only information that the owner

provides you is the magnitude of the price elasticity of the demand for its computers which is (-8).&nbsp; How much do you recommend this firm to mark up

(MUP) its price relative to its MC? (i.e., calculate MUP=[(P-MC)/MC].&nbsp; Please show your calculation and formulas to support your recommendation.
Extra Credit
1.[1 point]&nbsp;&nbsp; &nbsp;The next 4 questions refer to the following figure:

Two firms, A and B, produce similar, but not identical, products.&nbsp; BRA and BRB are, respectively, the reaction functions for firms A and B, which

compete primarily by price.

A)&nbsp;&nbsp; &nbsp;A’s best-response curve shows
a.&nbsp;&nbsp; &nbsp;all the Nash equilibrium prices that firm A can charge.
b.&nbsp;&nbsp; &nbsp;how firm B should react to any price set by A.
c.&nbsp;&nbsp; &nbsp;the price A should charge to maximize A’s profits given each possible price that B might charge.
d.&nbsp;&nbsp; &nbsp;the price A should charge to maximize joint profits.
e.&nbsp;&nbsp; &nbsp;both c and d

B)&nbsp;&nbsp; &nbsp;If firm A is expected to charge a price of \$6, B should charge a price of \$______ to maximize B’s profit.
a.&nbsp;&nbsp; &nbsp;\$4&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;b.&nbsp;&nbsp; &nbsp;\$7&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;c.&nbsp;&nbsp; &nbsp;\$12&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;d.&nbsp;&nbsp; &nbsp;\$16

C)&nbsp;&nbsp; &nbsp;If firm A predicts B will set a price of \$12, then firm A should charge a price of \$______ to maximize A’s profit.
a.&nbsp;&nbsp; &nbsp;\$6&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;b.&nbsp;&nbsp; &nbsp;\$8&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;c.&nbsp;&nbsp; &nbsp;\$10&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;d.&nbsp;&nbsp; &nbsp;\$12

D)&nbsp;&nbsp; &nbsp;In Nash equilibrium,
a.&nbsp;&nbsp; &nbsp;each firm has an incentive to increase price unilaterally.
b.&nbsp;&nbsp; &nbsp;the two firms are maximizing joint profit.
c.&nbsp;&nbsp; &nbsp;firm A charges \$12 and firm B charges \$16.
d.&nbsp;&nbsp; &nbsp;each firm is maximizing its profit, given what the other is doing.
e.&nbsp;&nbsp; &nbsp;both c and d