Economics Answers

expain why crossing indiffernce curve is impossible

1You are given the following information about the commodity and money markets of a closed economy without government intervention.

The commodity market

Consumption function;

C = 50 + 2/5Y

Investment function:

I = 790 – 21r

The Money Market

Precautions and Transactions demand for money

MDT = 1/6 Y

Speculative demand for money

MDS = 1200 – 18r

Money supply

MS = 1250

Required:

i.Determine the equilibrium levels of income and interest rate for this economy.

ii.Using a well labelled diagram, illustrate the equilibrium condition in part (i) above.

Based on market research, a film production company in Ectenia obtains the following

information about the demand and production costs of its new DVD:

𝐷𝑒𝑚𝑎𝑛𝑑: 𝑃 = 1000 – 10𝑄

𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒: 𝑀𝑅 = 1000𝑄 – 10𝑄2

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡: 𝑇𝐶 = 1000 − 20𝑄

𝑀𝑎𝑟𝑔𝑖𝑛𝑎𝑙 𝐶𝑜𝑠𝑡: 𝑀𝐶 = 100 + 10

Where, Q indicates the number of copies sold and P is the price in Ectenian dollars.

Bobby quits his job as a veterinarian to open a model train store. Bobby made$80,000 a year as a veterinarian. The first year his train store is open, Bobby pays a helper $26,000. He also pays $24,000 in rent, $10,000 in utilities, and buys$200,000 of model trains. Bobby had a good year because he sold all of his model trains for $300,000.Bobby’s normal profit is $30,000.

a. What would an accountant calculate as Bobby’s profit?

b. What is Bobby’s total opportunity cost? What is his economic profit?

Briefly explain the difference in assumptions underlying portfolio theory and the capital asset pricing model (CAPM)

a) Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e, bundling and unbundling financial assets) might be better spent on creating wealth (i.e, real estate)

Evaluate this criticism. (15marks)

assume that the patient is member of CBHI and this person is supposed to pay 20% of the user fee and will be refunded 80% of the user fee. Based on this information and the above demand equation, a) Develop demand schedule and curve. b) Compare the two graphs and explain the effect on the demand for health of the patient

Since the last few years, significant number of physicians have been graduated. If the government decides to reduce this number starting from this year, what would happen to the supply curve for physician services? Explain

Discuss the situation when the supply a particular health care service becomes price elastic, inelastic and neutral

a) Consider the following information for company XYZ:

Current dividend = 4n

Dividend 2years ago= 3.3n

Current equity beta=1.6

Equity risk premium=10%

Risk free rate=5%

Calculate the price of a share for this company. [5marks]