Answer:
B) In the short run, a monopoly will shut down if P < AVC.
Explanation:
If the price will be less than the AVC it means that the firm is not able to recover its variable coats and hence will not be able to produce. So it must shut down if it reaches this point in the short run because there is lesser scope of error in short run.
Prporety it is the long-term
Answer:
Explanation:
Calculation for 5th year dividend.
Year Dividend Growth Dividend
1 1.23 1.18 1.45
2 1.45 1.18 1.71
3 1.71 1.18 2.02
4 2.02 1.18 2.38
5 2.38 1.18 2.81
Now we find EPS for 5th year through payout ratio.
EPS5 = D5 / Payout ratio
EPS5 = $2.81 / 0.30
EPS5 = $9.37
Calculation for price.
P0 = Benchmark PE ratio x EPS5
P0 = 18 ($9.37)
P0 = $168.66
B. What is the stock price today.
Year Dividend Table value at 14% PV of dividend
1 1.45 0.8771 1.27
2 1.71 0.7694 1.32
3 2.02 0.6749 1.36
4 2.38 0.5920 1.41
5 171.47 0.5193 89.04
Total 94.40
Stock price today = $94.40