Economics of Enterprise Answers

in case of an inferior goods the income elasticity of demand is

If the market price is $34, then in the short run the firm will

Robert found his childhood piggy bank, which had been lost for ten years. The $20 bill inside it is still worth $20. What function is money serving in this example?

Possibility Cars (hundreds) Bicycles (hundreds)
A 15 0
B 11 5
C 8 7
D 5 9
E 0 11

Determine the opportunity cost of additional production at different outputs.
Determine which particular combination(s) is most efficient

Assume an economy can be represented by Y = 10 + 0.8×C + G, where Y is income (GDP), G is government spending and C is consumption. If G was to rise from 100 to 200 by how much would the equilibrium value of Y increase?
a. 500 b. 80 c. 100 d. 200

7. Which of the following characterizes both perfectly competitive and monopolistically competitive markets?
a. Firms face downward sloping demand curves

b. Firms sell differentiated products
c. Firms use advertising extensively

d. In the long-run equilibrium, firms earn zero economic profit 


9. Coase Theorem claims that the market can internalize externalities provided:
a. Markets are perfectly competitive 

b. Transaction costs are zero, irrespective of how property rights are defined 

c. Property rights are well-defined, irrespective of the transaction costs 

d. Property rights are well-defined and transaction costs are zero 


11. If the nominal interest rate is 10% and the price index rises from 200 to 210, what is the value of the real interest rate?
a. 0%
b. 20%
c. 15%
d. 5%.

Hamid Oil (HOSB) is a sole proprietor, producing oil palm in a large scale. The land and machinery he
owns has a current market value of RM4 million. HOSB owes a local bank RM3 million. Last year
HOSB sold RM5 million worth of oil palm. Its variable operating cost were RM4.5 million; accounting
BMME5103/USTY/JAN16/A-KK
depreciation was RM40,000, although the actual decline in value of HOSB macinery was RM60,000
last year. Hamid paid himself a salary of RM50,000, which is not considered as part of HOSB variable
operating costs. Interest on the bank loan was RM400,000. If Hamid worked for another oil palm
producer or a local manufacturer, his annual income would be about RM30,000. Hamid can invest
any funds that would be derived, if the farm were sold, to earn 10 percent annually. (Ignore taxes)
a. Compute Hamid’s accounting profits.
b. Compute Hamid’s economics profits.
c. Based on the answers above, what would be the better option for Hamid, financially?

A competitive firm has the following production function:
: ;(<) 400< 60< 6 6<?
Where y = output, x = input. The firm faces an output price of P = 10 and an input
price of W = 5440.
i) Write a profit function of this firm in terms of output and input prices and the
input level.
ii) What is the profit maximizing level of input for this firm? Verify that the input
level you choose is the profit maximizing point.
iii) Find the marginal product (MPx) of the variable input.
iv) Verify that P(MPx) = W at the profit maximizing input level.
b) What economics interpretation would be you attribute to the method of finding the
‘time-path’ using a difference equation? Explain your answer with the help of the
Cobweb model.

Externalities and public goods are examples of market failures. Explain why these are market failures. Also, provide two ideas to help solve each of these two market failures and why/how your ideas will work.

explain why accountants in the public sector are often paid less than those in the private sector