1. I recently sold my used car. If no new production occurred for this transaction, how
could it have created value? (explain in approximately 100 words)

2. Two similar surgeries, breast reconstruction and breast augmentation, have different
prices. Breast augmentation is cosmetic surgery not covered by health insurance.
Patients who want the surgery must pay for it themselves. Breast reconstruction
following breast removal due to cancer is covered by insurance. The price for one of the
surgeries has increased by about 10% each year since 1995, while the other has
increased by only 2% per year. Which of the surgeries has the lower inflation rate?
Why? (explain in approximately 100 words)

3. You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no
resale value). U2 has a concert the same night, and this represents your next-best
alternative activity. Tickets to the U2 concert cost $80, and on any particular day, you
would be willing to pay up to $100 to see this band. Assume that there are no additional
costs of seeing either show. Based on the information presented here, what is the
opportunity cost of seeing Bruce Springsteen? (in words make sure you explain your
logic and also show your work)

4. You run a game day shuttle service for parking services for the local ball club. Your
costs for different customer loads are 1: $30, 2: $32, 3: $35, 4: $38, 5: $42, 6: $48, 7:
$57, and 8: $68. What are your marginal costs for each customer load level? If you are
compensated $10 per ride, what customer load would you want? (your answer does not
need to be in paragraph form – consider using a table)

5. In early 2008, you purchased and remodeled a 120-room hotel to handle the
increased number of conventions coming to town. By mid-2008, it became apparent that
the recession would kill the demand for conventions. Now, you forecast that you will
only be able to sell 20,000 room-nights that cost on average $50 per room per night to
service. You spent $20 million on the hotel in 2008, and your cost of capital is 10%. The
current going price to sell the hotel is $15million. What is your breakeven price? (Please
make sure to show the steps to your solution)