Each of the questions below are worth 20 points each and require a short, succinct answer of a few sentences. Put your name in the slot above. Type your answers under each question and submit by NEXT TUESDAY, MARCH 5. Q1. There is some evidence that suggests that information technologies using Artificial Intelligence (AI) capabilities have displaced workers in some occupations. In other occupations however, expansion of production using AI technologies have not displaced labor but in fact have led to greater employment and higher wages. Using an economic framework or model, can you provide an explanation for this result? (Feel free to demonstrate using a graph if you like.) Q2. In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit area, Detroits city council is considering passing a statute that would give investment tax credits to auto manufacturers. Effectively, this would reduce auto manufacturers costs of using capital and high-tech equipment in their production processes. What is the likely impact of this statute on the number, skill level, and wages of workers that this automaker hires and explain why? Q3. You are research manager for a large professional association. Currently your association offers members access to a number of benefits including (a) research studies and content, (b) member contact lists, and (c) conference attendance, all as part of one annual membership fee. Your association is considering offering two or three tiers of membership levels with different packages of benefits. Explain whether a regression/econometric study would be useful to evaluate this new policy and if not, recommend a method that would be more appropriate. Q4. Recently, the Boeing Commercial Airplane Group (BCAG) recorded orders for more than 15,000 jetliners and delivered more than 13,000 airplanes. To maintain its output volume, this Boeing division combines efforts of capital and more than 90,000 workers. Suppose the European company, Airbus, enjoys a similar production technology and produces a similar number of aircraft, but that labor costs (including fringe benefits) are higher in Europe than in the United States. In which company is the marginal productivity of labor higher and why? Which company is more capital intensive (higher capital-labor ratio) and why? Q5. Joint Cost Assignment: Worth 60 points. How can you measure the profitability of individual products in a multi-product company when there are joint and common costs? Assignment: You work for the company that makes four products, and have been asked by the head of the Finance Department to find a way to measure the profitability of the four individual products: A, B, C and D, and to identify any that might be losing money and should be discontinued. All four products are priced properly and produced efficiently, so increasing the prices or cutting costs is not the answer. The revenue generated by the four products and the costs of the company are provided in the table. Read the information below the table and answer each of the following four questions: Find a way to measure the profitability of the four individual products. Based on your method, what is the profitability of each product? What recommendations would you make regarding possibly discontinuing one or more products? Do you see any problems with your method and results? Products A B C D Revenue ($M) $240 $192 $236 $72 Direct Cost ($M) $160 $160 $160 $40 Joint Cost ($M) $80 $80 Common Cost ($M) $40 Understanding joint and common costs The nature of joint and common costs (sometimes also called shared costs) is that they are unaffected by the addition or elimination of a single product. An example of a cost which is joint to two products (e.g., Products A and B) is a flat right-to-use fee for software which enables the company to offer the two products. A flat right-to-use fee does not change with changes in the level of output of either product. The joint cost of product family A and B is $80; the joint cost of product family C and D is also $80. A common cost is a cost incurred so that the firm can provide any or all services. Examples of common costs include the salary of the company president and the cost incurred by the Human Resources Department. For purposes of this example, the common cost might be a flat business license fee of $40 paid annually by the business.
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