Microeconomics Questions

1. Grumbles Rentals owns a new construction crane valued currently at $500,000 and which depreciates 10% a year. Explain whether the following statement is true or false: "Grumbles should charge an annual rental price no more than $50,000 for the new construction crane
otherwise customers will rent or buy a 1-year old used construction crane."

2. You are interested in buying a new car that is selling at a price of $27,000. The dealer offers the following purchasing arrangement: Pay a deposit of $4,500 now leaving a balance owing of $22,500. Over the next two years, you pay an annual payment of $5,500 at the end of each year. At the end of the end of the third year, you make a final payment to the dealer of $19,500. Under this arrangement, your total payment is $35,000. Alternatively, you could borrow to pay the $27,000 now.

a) Suppose you can borrow (or save) at an annual interest rate of 10 percent. Would you arrange your own financing to purchase the car or use that provided by the dealer?

b) Would you do the same as in part a) if the interest rate is 15 percent?

3. You come across a recent issue of an Australian business magazine that lists the "best managed companies" in Australia according to a survey of business executives, journalists, and academics. Explain whether the following statement is true or false: "Investing in the top ten best managed companies listed in the article would be a better choice than a randomly selected portfolio of Australian companies."

4. Many scientific studies conclude that secondary, or passive, cigarette smoke is harmful to non-smokers. Given this concern, discuss whether smoking should be banned completely?