Economics Answers

Suppose you were hired to calculate the Gross Domestic Product (GDP) by using the expenditure approach. You would count buying a new house as _____.

net exports
consumption
investment

Is the statement true or false - The forward and backward recursive formulation in Dynamic programming techniques can result in different optimum solutions to the same problem.

Is the statement true or false - If the primal LPP has an unbounded solution, the dual LPP cannot have a feasible solution.

Consider a profit-maximising firm in the short run that is making large abnormal profits. The price it can charge depends on its output. Draw a diagram to show how its output will be affected if it experiences a small increase in its fixed costs. Explain your diagram.

c) Alpha industries sells two products, X and Y, in related markets, with demand functions given by:
Px – 13 + 2X + Y = 0
Py– 13 + X + 2Y = 0
The total cost, in shillings, is given by:
TC = X + Y
Required:
Determine the price and the output for each good, which will maximize profits. (3 marks)

b) The demand for a commodity is given by p = 400 – q. The average total cost of producing the commodity is given by
where p is the price in shillings and q is the quantity in kilograms.

Required
i) What does in the ATC equation represent economically? (1 mark)
ii) Determine the output that leads to maximum profit and the profit at the level of output. (6 marks)

Your company Must-Stash is the sole producer of the popular “I am awake and this is interesting” expression mask. The mask is a highly useful product for students everywhere.

(a) You are currently selling your product via a distributor. Your cost of production is TC(x) = 20x and the demand for the masks is given by D(P) = 50(30 – P), where P is the price to consumers. Assume the distributor’s costs are zero and you are charging your distributor a single price W per mask. What is the price W you charge your distributor? What price P do they charge the consumers and what is the quantity of masks produced and sold? What are your profits? Explain your calculations.

A future contract exist on a stock with a current price of sh 80. The future contract
natures in 6 months. The risk free rate is 7% per year and the stock has an
annual dividend yield of 3%. Calculate the future price.

How are business expenses treated in regards to tax legislation?

Consider the cigarettes market in an economy. The demand for cigarettes is given by the
equation P = 20 – 0.2Q and the supply of cigarettes is given by the equation P = 5 + 0.1Q,
where P is the price per packet in dollars and Q is the number of packets of cigarettes.

Assume that the cigarettes market is perfectly competitive. Solve for the market
equilibrium price and quantity of cigarettes. Compute the producer surplus and the
consumer surplus in the cigarettes market. Use a well-labeled graph to illustrate all of
the characteristics of the competitive market equilibrium you have solved for.