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what is the required rate of return

3. A perfectly competitive firm has total revenue and total cost curves given by:
TR = 100Q
TC = 5000 + 2Q + 0.2Q^2
(a) Find the profit-maximizing output for the firm
(b) What profit does the firm make?

4. Mergers result in an increased economic efficiency. Discuss the economic justification (i.e., incentives) for a merger. List and define at least THREE reasons/incentives for firms to merge.

5. Company A has a beta of 1.3. The risk-free rate of interest is 6% and the rate of return on a market portfolio is 14%. Based on the Capital Asset Pricing model, what is the required rate of return on Company A's stock?

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Solution Preview

Hi there,

For question 1, please see the Excel spreadsheet attached.

Question 2 - three reasons to merge:

1.Economy of scale
When two small companies merge, one of the biggest benefits is being able to streamline the business. Duplications can be eliminated or put to better use. That means that extra fax machine can be sold or you can share one certified accountant. Funds spent ...