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In Nyeri town there are only two milk processors. The local inverse demand for milk is given by: Q = 120− P, where P denotes price, Q denotes the total quantity measured in cartons. Both milk processors have the same cost function given by C = 30Q, where C is total cost and Q is output measured in cartons. Calculate the profit for each firm
2. In a hypothetical economy, farmer grows wheat, which he sells to a miller for Rs 40,000. The miller
turns the wheat into flour, which he sells to a baker for Rs 70,000. The baker turns the flour into
bread and sells to consumers for Rs 1,20,000. Consumers eat the bread.
a) Using Value added approach, compute GDP by mentioning value added at each activity level.
b) Who contributes more to GDP, farmer, miller or baker and how much?
c) Does this example suggest another way of computing GDP, other than Value added approach? If
yes, suggest the name of the approach, compute GDP and compare the result which you found
with the value of GDP computed by Value added approach.
2. In a hypothetical economy, farmer grows wheat, which he sells to a miller for Rs 40,000. The miller
turns the wheat into flour, which he sells to a baker for Rs 70,000. The baker turns the flour into
bread and sells to consumers for Rs 1,20,000. Consumers eat the bread.
a) Using Value added approach, compute GDP by mentioning value added at each activity level.
b) Who contributes more to GDP, farmer, miller or baker and how much?
c) Does this example suggest another way of computing GDP, other than Value added approach? If
yes, suggest the name of the approach, compute GDP and compare the result which you found
with the value of GDP computed by Value added approach.
Catalina Films produces video shorts using digital editing equipment (K) and editors (L).
The firm has the production function Q=10L0.5K0 .5where Q is the hours of edited footage. The wage is $20, and the rental rate of capital is $5. The firm wants to produce 1000 units of output at the lowest possible cost. What is the optimal combination of editing equipment(K) and editors(L) that will minimize cost for Catalina Films?
1. Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO2 abatement standard. Further assume that the following SO2 abatement cost functions have been estimated by each country:
TACUS = 500 + 1.5(AUS)2
MACUS = 3 AUS
TACCAN = 1000 + 3(ACAN)2
MACCAN = 6 ACAN
where AUS and ACAN represent the percent of SO2 abatement achieved by the United States and Canada, respectively, and each TAC and MAC is measured in millions of dollars.
A. If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain. (10 marks)
B.
With fixed cost of $450, a firm has average costs of $5 and average variable costs of $3. Its output is __
Increase in net capital inflow will increase interest rates in the domestic loanable funds
market” – do you agree with this statement? Explain by drawing a diagram and
comment how you think investment will change if there is an increase in capital inflow.
What do you understand by the term “closed economy”? For a closed economy show,
National savings = National Investment
“Natural resources are the most important determinant of long-term economic growth”
– do you agree with this statement. Briefly explain your views.
Assume the Phillips curve is given by the simple equation U = - 1 + 16 The non-accelerating rate of unemployment is 8 percent. a. If inflation changes to 13 percent, what will be the unemployment rate in the short run? bWhat will it be in the long run?
