The Star Chemical Company wants to finance one of its production plants by borrowing $150 million for five years. Based on its moderate credit ratings, Star can borrow five-year funds at a 10.5% fixed rate or at a floating rate equal to LIBOR 75 bp. Given the choice of financing, Star prefers the fixed-rate loan. The Moon Development Company is also looking for five-year funding to finance its proposed $150 million office park development. Given its high credit rating, Moon can borrow the funds for 5 years at a fixed rate of 9.5% or at a floating rate equal to the LIBOR 25 bp. Given the choice, Moon prefers a variable-rate loan. In summary, Star and Moon have the following fixed and floating rate loan alternatives: Company Fixed Rate Floating Rate
Star Company 10.50% LIBOR + 75 BP
Moon Company 9.50% LIBOR + 25 BP

Mood has Absolute advantage in Both Markets, while Star has as comparative advantage in the floating rate market. If a total of 0.50% savings have to be split equally between both;

Required:
What is the effective cost to Star & Moon after the interest rate swap assuming that the savings were split equally. Find both effective COSTS to each.

Consider the local telephone company, a natural monopoly. the following graph shows the monthly demand curve for phone services and the company’s marginal revenue (mr), marginal cost (mc), and average total cost (atc) curves. 0 2 4 6 8 10 12 14 16 18 20 100 90 80 70 60 50 40 30 20 10 0 price (dollars per subscription) quantity (thousands of subscriptions) d mr mc atc 8, 60 suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. complete the first row of the following table. pricing mechanism short run long-run decision quantity price profit (subscriptions) (dollars per subscription) profit maximization marginal-cost pricing average-cost pricing suppose that the government forces the monopolist to set the price equal to marginal cost. complete the second row of the previous table. suppose that the government forces the monopolist to set the price equal to average total cost. complete the third row of the previous table. under average-cost pricing, the government will raise the price of output whenever a firm’s costs increase, and lower the price whenever a firm’s costs decrease. over time, under the average-cost pricing policy, what will the local telephone company most likely do