The Fisher Effect is a familiar economic theory in the domestic market. In words, define the Fisher Effect and explain why you think it is also appropriately applied to international markets
What will be an ideal response?
Answer: Irving Fisher was an early 20th century economist who hypothesized that all market determined nominal interest rates had at least two basic components. First, a real return is required to compensate investors for postponing current consumption. This real rate is constant and unaffected by expectations about inflation. Second, an expected inflation component is required so that investors would not expect to lose purchasing power by the act of forgoing current consumption. Intuitively, if capital can move freely among international markets these same requirements must exist in each of the capital markets and the Fisher Effect would apply internationally as well as domestically.
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Briefly describe single-segment concentration with an example
What will be an ideal response?
Business customers prefer to deal with producers through intermediaries and thus eliminate much of the burden of sorting out details.
Answer the following statement true (T) or false (F)
As the number of facilities in a supply chain increases, total facility costs
A) decrease. B) increase. C) increase to a point and then decrease. D) decrease to a point and then increase.
Tri-products is trying to decide whether to make or buy an accessory item for one of their products. It is projected that this item will sell for $10 each
If the item is outsourced, there is virtually no cost other than the $6 per unit that they would pay their supplier. Internally, they have two choices. Process A requires an investment of $120,000 for design and equipment, but results in a $4 per unit cost. Process B requires only a $100,000 investment, but its per unit cost is $5. Regardless of whether the item is subcontracted or produced internally, there is a 50% chance that they will sell 50,000 units, and a 50% chance that they will sell 100,000 units. Draw the decision tree appropriate to the alternatives and outcomes stated. Using the decision tree and EMV, what is their best choice?