Economics of Enterprise Answers

Review the example of the New Jersey cigarette tax (p. 71). Using graph paper or a computer, draw supply and demand curves that will yield the prices and quantities before and after the tax. (Figure 4-10 shows the example for a gasoline tax.) For this example, assume that the supply curve is perfectly elastic. [Extra credit: A demand curve with constant price elasticity takes the form Y = AP ^–e , where Y is quantity demanded, P is price, A is a scaling constant, and e is the (absolute value) of the price elasticity. Solve for the values of A and e which will give the correct demand curve for the prices and quantities in the New Jersey example.]

Do you agree with the view that 1) international comparisons of India are as important as 2) within India comparisons? Give reasons to substantiate your answer

A monopolist w11ishes to maximize total revenue. She produces two outputs, (x1, x2) and faces the following demands for her products,

X1 = 20 – 2p1, and

X2 = 20 – 4p2

Where p1 and p2 are, respectively, the prices of the two goods.

To produce one unit of x1 the monopolist must use one unit of land and one unit of capital. And, to produce one unit of x2 requires two units of land and one unit of capital. The firm has available 10 units of land and 6 units of capital.

Specify the firm’s short-run maximization problem.

Set up the Kuhn-Tucker conditions for maximization (you do not need to solve).

Assume that the solution is x*1 = 5 1/3 (i.e. 16/3) and x*2 = 2/3. Explain which constraints are binding and whether the Lagrange multipliers are positive or zero and what they mean.

A company estimated that the relationship between the unit price and demand per month for a potential new product is approximated by P = $ 100 – $ 0.1D. The company can produce the product by increasing fixed costs $ 17,500 per month, and the estimated variable costs is $ 40 per unit. What is the optimal demand, D*, and based on this demand, should the company produce new product? Why?

a) Work out the complete solution by differential calculus, starting with formula for profit or loss per month

b) Solve graphically for an approximate answer

Claudia has sold her car and received approval from the garage owner to re-lease her downtown reserved parking spot for the next four months so she can make some extra money. The rental fee is $200 per month, and she expects to charge $18 per day. Transportation in a car pool will cost her $6 per day. If there are a maximum of 20 work days per month for re-leasing the spot, determine the following:

a. Total cost and revenue relations

b. Breakeven quantity per month

c. Amount of money she will make (or lose) if the number of re-leased days per month over the four-month period are 18, 12, 17, and 20

Brent owns Beck Trucking. Seven years ago, he purchased a large-capacity dump truck for $115,000 to provide short-haul earth moving services. He sold it today for $45,000. Operating and maintenance costs averaged $9500 per year. A complete overhaul at the end of year 4 cost an extra $3200. (a) Calculate the annual cost of the truck at 7% per year. (b) If Brent estimates that Beck cleared at most $20,000 per year added revenue from using the truck, was the purchase economically advantageous?

A 600-ton press used to produce composite material fuel cell components for automobiles using proton exchange membrane (PEM) technology can reduce the weight of enclosure parts up to 75%. At MARR = 12% per year, calculate (a) capital recovery and (b) annual revenue required. Installed cost = $3.8 million n = 12 years, Salvage value = $250,000, Annual operating costs _ $350,000 to start increasing by $25,000 per year

An engineer collected average cost and revenue data for Arenson’s FC1 handheld financial calculator. Fixed cost $ 300,000 per year Cost per unit $40 Revenue per unit $70 a. (2 questions) What is the range of the breakeven quantity to variation in the fixed cost from $200,000 to $400,000 per year? Use $50,000 increments. What is the incremental change in the breakeven quantity for each $50,000 change in fixed cost?

b. (2 questions) Show the sensitivity of profit to variation in revenue from $55 to $75 per unit using a $5 increment. Perform this analysis at two sales quantities: (1) the breakeven quantity for the collected data, and (2) 20% greater than this breakeven quantity. (Note: Be sure to use the original estimates for FC and cost per unit.)

An engineer collected average cost and revenue data for Arenson’s FC1 handheld financial calculator. Fixed cost $ 300,000 per year Cost per unit $40 Revenue per unit $70 a. (2 questions) What is the range of the breakeven quantity to variation in the fixed cost from $200,000 to $400,000 per year? Use $50,000 increments. What is the incremental change in the breakeven quantity for each $50,000 change in fixed cost?