1.

1. Draw a graph of the total costs of an information product (such as the Microsoft office suite) against number sold and compare this with a conventional product (such as the Ford Taurus).

Information product, high fixed costs, low variable costs è flat curve

Conventional product, higher variable costs è more steep

2. What is meant by "opportunity cost"?

The cost of passing up the next best choice when making a decision. (e.g., you invest $1000 in the stock market and after one year, your opportunity cost can be the "interest" you can earn if you deposit this $1000 dollars in a CD account.)

3. You write a computer game that you sell online at $19.95. Your development (fixed) costs are $15,000 and your costs per download you calculate as being $2. What is your breakeven number of sales?

X: # of download

Total cost = fixed costs + variable costs = 15,000 + 2X

Total revenue = 19.95X

Breakeven, Total cost = total revenue, 15000+2X = 19.95X, X = 836 (downloads)

2.

1. What are "accounts receivable"

Answer: Money which is owed to a company by a customer for products and services provided on credit.

2. In the example discussed in class, what three main ways (apart from sales) are used to obtain finance for the company?

Answer: Pay-in capital (from current investors); Sale more stocks; Loan form banks..

3. In the example discussed in class, why did the Paid In capital jump from $100,000 to $700,000?

Answer: Barclay has issued and sold some stock

4. What is "depreciation"?

Answer: Decrease in value of an asset due to obsolescence or use

5. What statement is the "retained earnings" obtained from?