Economics of Enterprise Answers

 Fully discuss how the production possibility frontier demonstrates the basic economic

Problem of scarcity.

Suppose that the demand and supply functions for good X are

a.      What are the equilibrium price and quantity?

b.     What is the market outcome if price is $2.75? What do you expect to happen? Why?

c.      What is the market outcome if price is $4.25? What do you expect to happen? Why?

d.     What happens to equilibrium price and quantity if the demand function becomes

e.      What happens to equilibrium price and quantity if the supply function becomes

 (demand is   = 50- 8P)?  

What is the opportunity cost of increasing wheat production by 200 pounds by moving production from Point B to Point C?

5. Suppose that you are a portfolio manager for a large, diversified mutual fund. The fund’s chief economist is forecasting a slowdown in aggregate economic activity (i.e., a recession). Discuss how would you use your knowledge of estimated income elasticities of demand to alter the composition of the portfolio? 

The most comprehensive measure of money, M3, consists of M2 + … . 

In this question we look at the relation between the logarithm of weakly earnings and years of education. Using data from the national longitudinal study of youth, we find the following results for a regression of log weekly earnings and years of education, experience, experience squared and an intercept: 

Log (earnings) = 4.016 + 0.092 . educi  + 0.079 .expei +  0.002 . experi 2 

( 0.222)  ( 0.008) ( 0.025) (0.001) 

a).Construct a 95% confidence interval for the effect of years of education on log weakly earnings. 

(2 point) 

b).Consider an individual with 10 year of experience. What would you expect to be the return to an additional year of experience for such an individual (the effect on log weakly earnings)? 

(3 point) 

At EOY zero (now), a geometric gradient has a positive cash flow of $1,000 and for the following 5 years, it rises by 5 percent each year. At EOY 1, another geometric gradient has a positive value of $2,000, and for years two through five, it decreases 6 percent every year. What geometric gradient would you prefer, if the annual interest rate is 10 percent?

Suppose the monopolist faces the market demand function given by Q=144/p2

The AVC of the firm is given as AVC = Q ½ and the firm has a fixed cost of $ 5

a) determine equilibrium P&Q

b) determine the maximum profit

Acme Tools manufactures and sells cordless in a market where price (p) and demand (D) are related as follows:

p = $40 + (3,000)/D – (4,800)/D²

The fixed cost (C_F) is $1000 per month and the variable cost per drill (c_v) is $46.

a)     How many drills should be produced each month to maximize profits?

b)     How much is the maximum profit each month?

Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split?