Question

According to James Tobin’s q-theory:

q = market value of firm / replacement costs

Explain what is likely to happen to the size of firm given that q > 1 , q < 1 and q = 1 . Provide logic for each answer.

Answer #1

Tobin's Q is:
a) the ratio of the market value of company assets to the
replacement costs of the assets, as well as a means to find
overvalued stocks: If Q is high it means that the cost to replace a
firm's assets is greater than the value of its stock.
b) the ratio of the market value of company assets to the
replacement costs of the assets.
c) the same as the price-to-book ratio.
d) a means to find...

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Consider a perfectly competitive market where the market demand
curve is p(q) = 1000-q. Suppose
there are 100 firms in the market each with a cost function c(q)
= q2 + 1.
(a) Determine the short-run equilibrium.
(b) Is each firm making a positive profit?
(c) Explain what will happen in the transition into the long-run
equilibrium.
(d) Determine the long-run equilibrium.

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A firm sells its product in a perfectly competitive market where
other firms
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