The town where Beth’s Lawn Mowing Service is located (see Problems 8.1 and 8.2) is subject to sporadic droughts and monsoons. Du
ring periods of drought, the price for mowing lawns drops to $15 per acre, whereas during monsoons, it rises to $25 per acre.
a. How will Beth react to these changing prices?
b. Suppose that weeks of drought and weeks of monsoons each occur half the time during a summer. What will Beth’s average weekly profit be?
c. Suppose Beth’s kindly (but still greedy) father offers to eliminate the uncertainty in Beth’s profits by agreeing to trade her the weekly profits
a. How will Beth react to these changing prices?
b. Suppose that weeks of drought and weeks of monsoons each occur half the time during a summer. What will Beth’s average weekly profit be?
c. Suppose Beth’s kindly (but still greedy) father offers to eliminate the uncertainty in Beth’s profits by agreeing to trade her the weekly profits
1 answer:
Answer: question not complete
c. Suppose Beth’s kindly (but still greedy) father offers to eliminate the uncertainty in Beth’s profits by agreeing to trade her the weekly profits based on a stable price of $20 per acre in exchange for the profits Beth actually makes. Should she take the deal?
d. Graph your results and explain them intuitively. Solution to this is in the picture attached
Explanation:
During the period of drought, the rate of mowing is $15 per acre, while, in the period of monsoons, the rate is $25 per acre.
a). Beth's supply function will be
q = 5P - 50
If P =15
q = 5 x 15 - 50
= 75-50
= 25
If P = 25
q = 5 x 25 - 50
= 125 - 50
= 75
b). The periods of both drought and monsoon will last for equal number of weeks in the summer. The average weekly profit will be:
If P = 15
π = P x q - C
= 15 x 25 - 362.5
= 375 - 362.5
= 12.5
If P =25
π = P x q - C
= 25 x 75 - 1362.5
= 1875 - 1362.5
= 512.5
The average weekly profit will be
=12.5 + 512.5 / 2
=525 / 2
= 262.5
c). Father offer a price of $20 irrespective of the season and the quantity will be:
q = 5 x 20 - 50
= 50
The profits in this case will be
π = P x q - C
= 20 x 50 - 800
= 200
This is less than the average profits in the other cases, hence, this offer will make her worse off.
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Answer:
Please check the attached image for the answers
Explanation:
Check the attached image for a clearer image of the table used in answering this question
A.
Cost of asset = c
Useful life = 5
Depreciation expense using the double declining method = Depreciation factor x cost of the asset
Depreciation factor = 2 x (1/useful life)
= 2 × (1/5) = 0.4 = 40%
Because the depreciation factor is 40%, the remaining book value after depreciation would be 60%.
Note that : Book value in year 1 = Cost of asset - Depreciation expense of year 1
Book value in year in subsequent years = previous book value - that year's depreciation expense
The book value in year 2: 0.6c x $51,000
Solve for c = 51,000 / 0.6 = 85,000
So, the book value in year 2 is $85,000
The book value in year 1 which is also the cost of the asset can be found using this equation : (2 / 5 ) x c = $85,000
Solve for c = $85,000 × (5/2) = $212500
The cost of the asset is $212,500
For asset b
Sum of the year Depreciation expense = (number of useful life remaining / sum of useful years) x (Cost of asset - Salvage value)
number of useful life remaining at year 2 = 7
Sum of useful life = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36
The equation for year 2 depreciation : (7/36) × ($40,000 - Salvage value) = $7,000
0.194444 × ($40,000 - Salvage value) = $7,000
Make salvage value the subject of the formula and solve
Salvage value = $4,000
For asset c,
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
Inputting the values given for asset C into the above equation: ($103,000 - $13,000) ÷ useful life = $9,000
= $90,000 / useful life = $9,000
Solve for useful life, useful life = 10 years
For asset D,
To find the depreciation method used , we have to employ trial and error method. We would try all the depreciation methods available and determine which depreciation method would give us the depreciation value of $23,900
I would start with the straight line depreciation method Deprecation method.
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
= ($268,000-$29,000)/10 = $23,900
From the above calculation, the depreciation method used is the straight line depreciation method.
For asset E,
The 150% declining method = Depreciation factor x cost of the asset
Depreciation factor = 1.5 x (1/useful life)
1.5 x (1/8) = 0.1875
To derive the depreciation expense in year 2, the book value at the beginning of year 2 has to be determined. To determine the year 2 book value, the depreciation expense in year one has to be determined.
Year 1 depreciation expense = 0.1875 x $219,000 = $41,062.50
Year 2 , book value = $219,000 - $41,062.50 = $177,937.50
Depreciation expense in year 2 = 0.1875 x $177,937.50 = $33,363.28
I hope my answer helps you
