There are a total of 50 points available on this individual assignment. Be sure to clearly explain your answers and show your work to receive full credit. Late assignment opportunity cost: Deducts 3 points per day. 1. (10 points) Valentine's Day a) (3 points) On Valentine's Day, the price of roses increased by more than the price of greeting cards. Why? You may wish to use graphs to explain your answer. b) (7 points) Seeking the approval of rose buyers, the government imposes a price ceiling of $11 per dozen roses. The government deploys FBI agents to ensure that no florist receives more than the maximum legal price of $11 for a dozen roses. Use demand and supply analysis to describe what happens in the market for roses. Is this law an effective way to ensure reasonable prices for Valentine's Day roses? Please be sure to analyze the effects of the law on price of roses and the roses during Valentine's Day week. Accompany your analysis with a carefully labeled demand and supply graph. 2. (10 points) a. (4 points) An economics professor went out to dinner one night and observed one of her students drinking heavily. The next day was a final exam. When the professor's husband found out the student was in her class, he said the student's behavior was irrational. The professor disagreed. Under what condition is behavior irrational according to the properties of consumer behavior discussed in chapter 2? What situations could make the student's behavior rational? b. (6 points) St. Martin running rentals (SMRR) rents wave runners tourists who want to "Explore St. Martin." The marginal cost of providing a wave runner rental is $30.00 per day. SMRR has daily fixed costs of $80,000. The daily demand curve facing St. Martin Rentals is P(Q) = 240– 0.10*Q. What is the profit maximizing price? How many wave runners will St. Martin Rentals rent per day. What are SMRR's daily revenues, costs, and profits? 3. (10 points) Anna can make 6 cups of hot chocolate per hour or she could produce 16 snow cones per hour. Elsa can make 16 cups of hot chocolate per hour or she could produce 20 snow cones per hour. a. (2 points) Who has an absolute advantage in producing hot chocolate? Who has an absolute advantage in producing snow cones? b. (2 points) Who has a comparative advantage in producing hot chocolate? Who has a comparative advantage in producing snow cones? c. (6 points) Anna and Elsa are isolated. Anna works 3 hours per day and produces (and consumes) 15 cups of hot chocolate and 8 snow cones. Elsa works 3 hours per day and produces (and consumes) 32 cups of hot chocolate and 20 snow cones. Now assume Anna and Elsa end their isolation and develop a trading relationship. How can Anna and Elsa trade, such that they each work 3 hours per day, but both Anna and Else are better off than before? Provide specific numbers to show how they are better off. 4. (8 points) Investments Over Time You are the CFO of MPS a small engineering company that makes the machines that are used to make French fries. MPS can borrow and lend money at the same annual interest rate of 5%. Your engineers have four suggested investments for your consideration. Which of these investments will you approve? Which of these investments will you stop? Why? Be sure to clearly explain your answer showing work if necessary. a. (2 points) Purchase of a Tig Welder Spend $90,000 immediately. The engineers know that this Welder will save $700 in labor costs per year forever. b. 2( points) Purchase of a Three-Dimensional Printer Spend $80,000 immediately to purchase a three-dimensional printer to make plastic prototypes of future fry designs for your largest customer. This printer will increase your revenue by $6500 per year forever. c. (2 points) Six-Sigma Training for all MPS Engineers Spend $25,000 immediately. One year from now, after Six-Sigma Training is completed your Engineers will save a one-time $26,000 for one year. d. (2 points) Six-Sigma Training for all MPS Accountants Spend $5,000 immediately and $12,000 one year from now. One year from now, after Six-Sigma Training is completed your Accountants will save a one-time $16,000 for one year. 5. (12 points) Supply and Demand Use supply and demand to explain the following real-world events graphically and in a paragraph. Be sure to explain what happens to the market quantity and price. a) (3 points) In the market for 4k televisions, engineers discover how to reduce screen manufacturing costs by 15%. b) (3 points) In the market for carbonated soda a news story questions the nutritional value of drinking many carbonated sodas. c) (3 points) The U.S. dollar increases in value during 2014. The U.S. dollar can be purchased with Canadian dollars in the foreign exchange market. d) (3 points) The recent market for beef brisket according to this Wall Street Journal article available on the course blog: Brisket Was Cheap and Delicious; Now It's Expensive and You Have to Wait in Line.