Economics assignment

Economics assignment

Problem Set Number 1

Question 1

a) Option A has lowest profit level, but with the passage of time, it has increased at the highest level. On the other hand, in Option B, the profits initially are the greatest but they have declined with each passing year, to the point that there is no profit in the final year. Option C implies that the stream of profits is consistent each year.

b) Present Value of Option A= 251600.85

Present Value of Option B = 1883720

Present Value of Option C= 251600

The option B is the most viable as it has the highest present value.

Question 2

The significant change in the revenue suggests that company is utilizing its plant in a better manner and there asset utilizations have improved. The company must go ahead with the new campaign. The reason for going ahead with the new campaign is. If one looks at the fixed cost, it has not changed as the advertisement is a variable cost. The increase in the revenue is around 10 million after the advertisements are being accounted for. At the same time, variable costs have increased by 3 million.

Question 7

The inverse demand curve would be given by P = 40 - 0.1Q

The consumer surplus at Price of $ 10 would be (40 -10)/2 x 300 = 4500

The consumer surplus at Price of $ 30 would be ( 40 - 30)/2 x 100 = 500

The generally speaking is that with the decrease in price, the consumer surplus generally increases.

Problem Set Number 3

Question 1

L

K

Q

MPL

APK

APL

VMPL

0

120

0

-

-

-

-

1

120

400

400

3.333

400

1200

2

120

1300

900

10.833

750

2700

3

120

2700

1400

22.5

900

4200

4

120

3300

600

27.5

825

1200

5

120

3600

300

30

720

900

6

120

3700

100

30.833

616.666

300

7

120

3760

60

31.333

537.142

180

8

120

3800

40

31.666

475

120

9

120

3200

-600

26.666

355.555

-1800

10

120

2500

-700

20.833

250

-2100

The fixed inputs are the capital while the labor is the variable input

The firms fixed costs are those $ 120.

The variable costs of producing 3600 units is 15 x 5, which is $ 75.

For maximization of the profits, firm must be producing 3800 units, cause at that production level, the Value Marginal Product of Labor is closest to the wage rate.

The maximum profit which is 3800 x 8, which equals 30,400.

The marginal returns are increasing till the fourth unit is being produced, on the other hand, the declining marginal returns are seen when the 8th unit is produced, lastly, the negative returns are seen when production exceed the ninth unit.

Question 4

Q

FC

VC

TC

AFC

ATC

MC

0

25000

0

25000

-

-

-

100

25000

35000

60000

250

6000

35000

200

25000

55000

80000

125

4000

55000

300

25000

65000

90000

83.333

3000

65000

400

25000

1575000

1600000

62.5

4000

1575000

500

25000

2975000

3000000

50

6000

2975000

600

25000

5375000

5400000

41.666

9000

5375000

Question 7

Fixed Cost

Labor

Q

MPL

VMPL

1200

0

0

-

1200

1

700

700

1400

1200

2

1000

300

6000

1200

3

1200

200

4000

1200

4

1300

100

2000

1200

5

1350

50

1000

1200

6

1375

25

500

Problem Set 4

Question 1

The index is calculated by taking the square of each HHI =2421.875

0.375 + 0.25 + 0.125 + 0.125 = 0.875

In percentages the above ratio is said to ...