1.George’s T-Shirt Shop produces 3,000 custom-printed T-shirts per month. George’s fixed costs are $9,000 per month. The marginal cost per T-shirt is a constant $10.

George’s break-even price is

per shirt.

Suppose George sells 50% more T-shirts per month.

At this quantity of shirts, George’s break-even price is

per shirt.

2. Suppose an initial investment of $100 will return $55/year for three years (assume the $55 is received each year at the end of the year).

At a discount rate of 30%, this investment is or is not profitable?

3. Perhaps the most important kind of capital is human capital. For example, most lawyers spend years learning to practice law. Lawyers are willing to make large investments in their human capital because they expect to be compensated for doing so when they begin work. Suppose the government nationalizes the market for legal services, resulting in lower compensation for lawyers. Assume lawyers cannot easily move to other countries.

True or False: The investment in human capital for lawyers is subject to post-investment hold-up.

4. A university spent $2 million to install solar panels atop a parking garage. These panels will have a capacity of 300 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 10%, that electricity can be purchased at $0.10 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero.

Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first.

Approximately how many hours per year will the solar panels need to operate to enable this project to break even?