Economics Answers

Given the two factor product in Q= 150L^0.5 K^ 0.5, wage rate of labour = 50 and rental cost of capital = 40. Determine the amount of labour and capital that will minimize the cost of producing 1118 units of output?

Morgan Stanley has a current cash flow (at time 0) of $3.4 m and pays no dividends. The present value of the company’s future cash flows is $14.6 m. The firm is entirely financed with equity and has 400,000 shares outstanding. Assume the dividend tax rate is zero.

a.   What is the share price of Morgan Stanley stock?

b.   Suppose the board of directors of Morgan Stanley announces its plan to payout 40% of its current cash flow as dividends to its shareholders. How can Andy, who owns 800 shares of Morgan Stanley stock, achieve a zero payout policy on his own?

As a finance manager of Kersot Enterprise Limited, where the Board of Trustees is reviewing the mix of the capital structure of the enterprise based on target value and has decided to raise 40 percent of new funds from long-term debt, 10 percent from preferred shares, and 50 percent from ordinary shares with components of 5.6, 10.5 and 15.7 respectively.

Estimate percentage of this BEST MIX for the enterprise and support the decision taken.        

Assume that MKU Enterprise Ltd sells a 500 KES bond that matures in 10 years. The annual interest payments are 45 KES and the net proceeds of the bond are Ksh. 478. Use the correct formula and the above given data to estimate before-tax-cost of bond.  

How does a competitive firm determine its profit-maximizing level of output? Explain

Q.2 Suppose you take a job that pays $30,000 and set some of this income aside in a savings account

that pays an annual interest rate of 5 percent. Use a diagram with a budget constraint and

indifference curves to show how your consumption changes in each of the following situations. To

keep things simple, assume that you pay no taxes on your income.

a. Your salary increases to $40,000.

b. The interest rate on your bank account rises to 8 percent.

Q 1 a) The Output and the total cost data for a firm are given below. Work out the following costs.

Total Fixed cost, Total Variable cost, Average Fixed cost, Average Variable cost, Average Total cost and

Marginal cost at various levels output.

Units of output 0 1 2 3 4 5 6

Total cost (Rs.) 60 90 100 105 115 135 180

b) If the total cost is positive at zero level of output, what does it signify?

What are the the effects of an expected future increase in taxes on the current national savings, investment, and the interest rate? Using the saving - investment diagram (graph) to analyze.

Amanda can build 10 tables in an hour. She can also build 25 chairs in an hour. She spends 8 hours a day working (building tables/chairs).

1. Draw and label Amanda’s production possibility frontier for building tables and chairs.
2. What is Amanda’s opportunity cost of building 75 chairs?

What are the equilibrium values of C,I and r?

GDP (Y) i=5,000

C=740+0.5 (Y-T)

I=1500 - 50r where r is the real rate of interest in percent

T= 1259

G=1125