Consider the issue of determining the optimal amount of investment in national defense in a country composed of two regions. Assume that national defense is a pure public good; it is non-rival and non-excludable. Denote by q the amount of national defense. The total cost of producing q units of defense is C(q) = 10q. In region 1, the total benefit of national defense is
In region 2, the total benefit of national defense is .
(a) Derive the marginal benefit of defense for each region and the marginal cost of providing defense as a function of q.
(b) What is the socially optimal amount of investment in national defense?
(c) Suppose region 1 has to finance all of the investment in national defense. What is the optimal amount of investment for region 1?
(d) Suppose region 2 has to finance all of the investment in national defense. What is the optimal amount of investment for region 2?
(e) Suppose the national government knows the socially optimal amount of defense, and proposes to fund it by requiring each region to pay half of the total cost.
i. Calculate the change in welfare for each region under this policy, compared to the scenario where region 1 has to finance all the investment in national defense.
ii. If the two regions could vote on whether to adopt this policy instead of having region 1 finance all defense investment, would both regions vote yes?

Goals that are overly ambitious can discourage employees and decrease motivation, yet the idea of stretch goals is proposed as a way to get people fired up and motivated. as a manager, how might you decide where to draw the line between a “good” stretch goal and a “bad” one that is unrealistic?

Daniel owns 100 shares of abc corporation's common stock. abc uses the fair value option, and recent declines in the firm's credit rating have caused the value of the firm's outstanding bonds payable to drop by 10%. daniel feels this is good news, but he wants to know what you think about the situation. which of the following represents your best response? a : "this situation may be positive for you in that the change in abc's credit standing indicates that the value of the firm's assets is likely increasing. however, the drop in bond value may negate any positive effects on your bottom line, because it means your claim on the firm's assets is simultaneously decreasing." b : "actually, this is bad news all around. the drop in the value of abc's bonds payable means shareholders' claims on the firm's assets have decreased. moreover, abc's declining credit rating means that the firm's assets are probably also dropping in value, thus magnifying your losses even more." c : "on the surface, this seems like good news because it means your claim on the firm's assets has increased. however, the drop in creditworthiness may also indicate that abc's assets are declining in value, thus offsetting any gains associated with the drop in bonds payable." d : "you're right! this is good news because it means that abc's debtholders have a decreased claim on the firm's assets. as a result, the firm's existing shareholders"like you"have seen their claim on the firm's assets increase."

What are the general categories of capital budget scenarios? describe the overall decision-making context for each.