Economics of Enterprise Answers

An employer has narrowed a list of applicants down to two individuals. The two candidates look nearly identical on paper, but one of them has earned a four-year college degree. The employer decides to offer employment to the college graduate. What does this example illustrate?

Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity?

YI = β 1X I 1 + β 2X I 2 + UI

WhereUi ∼ NID (0, σu2 ) , YI is observable random variable and theXij ' s , j =1, 2

are observable non-random (non-stochastic) variables.

The data that follows is based on a sample of size N = 120 and gives the

sums of squares and cross-products of the indicated variables

Y X1 X2Y 39 6 2X1 6 4 0X2 2 0 4

a). Compute the best linear unbiased estimates of the coefficients. (2 points)b). Give a 95% confidence interval for β1 . (2 points)Test the hypothesis H 0 : β1 + β2 = 1 against the alternative H 0: β1 + β2 ≠ 1

at the 95%confidence level.

a) A farmer sells cabbages for N$10 per head. The farmer’s variable costs are N$2.50 per head and total cost of 100 heads is N$1450. i. How many cabbages must the manufacturer produce each month to break even? (6) ii. How man cabbages should be produced to make profit (4) b) Total cost of producing carrots is C(x) = 3600+100x+2x2 and the total revenue function R(x) =500x-2x2 i. Find the number of kg that maximizes profit (6) ii. Find maximum profit