9. Problems and Applications Q9 1.Equilibrium Effects2.Welfare Effects STEP: 1 of 2 Suppose a tightening of copyright legislation on Internet usage has increased the cost of film streaming services. Show the effect of the increase in production costs on the market for film streaming services. Demand Supply Price of Film Streaming Services Quantity of Film Streaming Services Demand Supply Prior to the availability of film streaming services, people had to go to the theaters to watch movies; today, many people choose to watch movies at home through film streaming. According to this statement, film streaming services and movie tickets are . Show the effect of the price change in the market for film streaming services on the market for movie tickets. Demand Supply Price of Movie Tickets Quantity of Movie Tickets Demand Supply Consider the relationship between film streaming services and Internet services. Show the effect of the price change in the market for film streaming services on the market for Internet services. Demand Supply Price of Internet Services Quantity of Internet Services Demand Supply

Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?