Economics Answers

effect of minimum wage below and above equilibrium

With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable.

A firm in a purely competitive industry is currently producing 1,000 units per day at a total cost of $700. If the firm produced 800 units per day, its total cost would be $450, and if it produced 500 units per day, its total cost would be $425.
Instructions: In parts a and c, round your answers to 2 decimal places. In part d, round your answer to 1 decimal place.
a. What are the firm's ATC at these three levels of production?
At 1,000 units per day,
At 800 units per day,
At 500 units per day,
b. If every firm in this industry has the same cost structure, is the industry in long-run competitive equilibrium?
c. From what you know about these firms’ cost structures, what is the highest possible price per unit that could exist as the market price in long-run equilibrium?
d. If that price ends up being the market price and if the normal rate of profit is 10 percent, then how big will each firm’s accounting profit per unit be?

There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $36 for every $600 invested.



Instructions: Enter your answers as whole numbers.



a. What is the percentage rate of return for these 298 dairies?
percent.



b. The other two dairies have a cost structure that generates profits of $52 for every $400 invested. What is their percentage rate of return?
percent.



c. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each other's technology, will there be entry or exit? .



Will the change in the number of firms affect the two that earn $52 for every $400 invested? .



What will be the rate of return earned by most firms in the industry in long-run equilibrium?
percent.



If firms can copy each other’s technology, what will be the rate of return eventually earned by all firms?
percent.

Source: https://www.news24.com/SouthAfrica/Local/Stanger-Weekly/sa-domestic-workers-toget-higher-minimum-wage-20190109-2 Accessed 24/09/2019

With the aid of a diagram, discuss the welfare effect of this new legislation if the new minimum wage is (1) below the equilibrium wage and (2) above the equilibrium wage rate with labour hours as your quantity variable.

Two alternative start-up FinTech projects were being contemplated for financing by a venture capitalist to determine which one is more viable, based on cost and returns. Table 4.1 below shows a five-year schedule for the two projects:

Table 4.1
Project Start of Project End of 1st Year End of 2nd Year End of 3rd Year End of 4th Year End of 5th Year
BlockChain GoPay ($230,000) ($32,000) $66,000 $96,000 $106,000 $119,000
DLT CloudPay ($276,000) $20,000 $65,000 $96,000 $102,000 $118,000

(a) If you were the Project Manager on the Venture Capitalist team, using the Net Present Value (NPV) method, which project would you recommend be financed based strictly on the schedule shown above and an interest rate of 7.5%?
(b) Use a Microsoft Excel, or any other method to deduce/calculate the Internal Rate of Return (IRR) for both projects. Explain how you would advise the Bank which project to finance using the result from the IRR method?

The current market price is $30. The marginal cost (MC) is $1 at 1 unit of output and increases by $1 for every extra unit produced, e.g. at 4 units, MC=$4, at 5 units, MC=$5 and so on. Average total cost (ATC) equals $40 and Average variable cost (AVC) equals $32 at the profit-maximizing level of output.

what is the profit maximizing output

when the price o a product is below the market clearing price, the market experiences

200 units of a product cost #800 and 400 units cost #1200. Find the fixed cost and the cost of producing 800 units.

(c) If a Commercial Bank A offers its savers 10.3% annual interest rate and pays interest annually, while another Commercial Bank B offers its savers 10% annual interest rate but pays monthly. Which Commercial Bank you would deposit your money, if you intended to keep in the savings account for 5 years. Show all numerical calculations