Microeconomics Answers

An executive's three-year employment contract calls for an annual salary of $6 Millions (paid in monthly installments) for the first year with a 10 percent increase in the salary each year. What is the present value of this contract ? The appropriate discount rate is 8 percent per year.

Shashank Construction Company borrows the entire cost of a new trailor truck. The loan has an annual interest rate of 12 percent and calls for monthly payments of $10,000 over a five-year period. What is the cost of the truck ?

A couple borrows $1 Million to buy a car. The loan agreement specifies that monthly payments are to be made for four years. The annual interest rate is 12 percent. Determine the monthly payment ?

A firm develops a new product that will add 1 Million to profit each year for five years. If the discount rate is 10 percent per year, how much will this new product add to shareholder value?

Lightco Corpn. has just replaced its production machinery with new, more efficient equipment that will reduce annual production costs by 5 Million per year. The cost of the new machines is 288 Million. if the firm uses a discount rate of 8 percent per year, how many years will it take for the firm to recoup its investment?

A state department of transportation is considering replacement of a bridge at a cost of 200 Million. The life of the new bridge is 30 years, and it is estimated that improved safety and reduced congestion would be valued by bridge users at Rs. 30 Million per year. The Department uses an interest rate of 10 Percent to evaluate capital projects.
(a) Should this proposal be implemented ?
(b) if not, what is the maximum cost of new bridge that could be justified by the benefits?

A manufacture of personal computers has an inventory of 10,000 back-up storage drives that sold for $100 per unit last year. The current market Price of these drives is now $70 per unit. By adding one of these drives to their stock of personal computer, the price of each computer is increase by $80 per unit. Should the driver be added ? what is the opportunity cost of these drivers? Explain

Given the demand equation
Q = 12,000 - 10P^2.
a). For this equation, write the expression for the point price elasticity of demand as a function of P.
b). Over what range of prices is the demand inelastic ?

Find the equilibrium of L and K subject to a given output: (10)
Minimize cost: C = 40K+ 20L Subject to Q = 60 L K= 3000

If R1000 and the average fixed cost is R16 when 25 units of output are produced, then the average variable cost at that level of output is...

1. R16
2. R24
3. R40
4. Impossible to determine.