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Anuradha Sharma, a start up entrepreneur from Bareilly, has invested Rs 80 lacs in an apparel retail
store. Business has been good, and the store shows an accounting profit of Rs 10 lacs for the last year.
This profit is after taxes and after payment of a Rs 20 lacs salary to Ms. Sharma. This salary is less than
what she could make at another job, which is about equal to Rs 40 lacs. Considering the risk involved in
the fashion retail business post Covid’19, she believes that a 15 percent after-tax rate of return is
appropriate for this type of investment. (20 marks)
a. Given this information, calculate the economic profit earned by Ms Sharma.
b. What accounting profit would the firm have to earn in order for the firm to break even in term
of economic profit?
: Qd = 20,000 - 3P Qs = 15,000 + 2P
Where ‘P’ is the price in rupees of a renewable energy resources, ‘Qd’ is quantity demanded for renewable energy resources, a ‘Qs’ is quantity supplied for renewable energy resources. Requirements:
a) Calculate the equilibrium price and equilibrium quantity of renewable energy resources.
b) Calculate price elasticity of supply using point elasticity method when renewable energy sector is in equilibrium. Also, interpret the result
. c) What will happen to the equilibrium quantity and equilibrium price of renewable energy resources if energy sector improves the technology? (Graph is not required)
Afghanistan reported its first COVID-19 case on February 24, 2020. As the infection spread, the
the government tightened containment measures, including introducing screening at ports of entry, quarantine for infected people, and closure of public places for gathering.
In May, it waived electricity bills of Af 1,000 (US$13) for each family residence in Kabul for two
months. The decision benefited more than 1.5 million Kabul residents.
In May, it waived electricity bills of Af 1,000 (US$13) for each family residence in Kabul for two months. The decision benefited more than 1.5 million Kabul residents.
- Draw a graph using the budget line and indifference curve to indicate the substitution effects and income effects for the families in Afghanistan after the government waived electricity bills. Assumed that there are two goods: electricity and other goods and services.
- Explain if the electricity is normal goods or inferior goods, and the sign of total effects is negative or positive?
In the simple circular flow of economic activity, goods, and services flow via:
You have been appointed as an economic advisor to Wheels SA, an organisation that oversees the motor vehicle industry in South Africa. Over the past year, the following simultaneous changes have occurred in the South African motor vehicle market:
• A recently published survey indicates that consumers expect the price of motor vehicles to increase in the future;
• The cost of manufacturing motor vehicles has increased due to an increase in labour costs as well as the costs of other inputs.
Explain, with the use of a graph, the impact of the above changes on the equilibrium price and equilibrium quantity in the motor vehicle market
Use the uploaded dataset titled ‘ceosal2’ to model the relationship between company’s CEO salary and sales. The variables are defined as the following: Y = CEO’s salary, in thousands of dollars X1 = firm sales, in millions of dollars X2 = company’s market value, in millions of dollars X3 = years of tenure as CEO with the company Now, consider the following model specifications: 𝑙𝑛 𝑌 = 𝛼0 + 𝛼1𝑙𝑛𝑋1 + 𝑢 (1) l
n 𝑌 = 𝛽0 + 𝛽1𝑙𝑛𝑋1 + 𝛽2𝑙𝑛𝑋2 + 𝛽3𝑋3 + 𝑣 (2)
The basic specification (equation 1) tests the effect of firm sales on CEO’s salary (both in logarithmic form). The basic model can be extended to include logarithm of firm market value and CEO’s tenure with the company that are expected to increase CEO’s salary.
a. Estimate both equations and present in tabular format without using outreg2. Include columns for standard errors and t-statistics.
Consider the following estimated OLS regression capturing relationship between weight loss and distance walked (values in round brackets are the estimated t-statistics): 𝑤𝑒𝑖𝑔̂ℎ𝑡 = −0.65 − 8.2 ln(𝑤𝑎𝑙𝑘) + 0.35𝑐𝑎𝑙𝑜𝑟𝑖𝑒 (-9.028) (-3.04) (6.604) 𝑅̅ 2 = 0.53
v. Can you compute the standard errors of the regression coefficients based on the regression output provided?
Consider the following estimated OLS regression capturing relationship between weight loss and distance walked (values in round brackets are the estimated t-statistics): 𝑤𝑒𝑖𝑔̂ℎ𝑡 = −0.65 − 8.2 ln(𝑤𝑎𝑙𝑘) + 0.35𝑐𝑎𝑙𝑜𝑟𝑖𝑒 (-9.028) (-3.04) (6.604) 𝑅̅ 2 = 0.53 where weight is person’s weight in kilograms, walk is distance walked in km per day, calorie is number of calories consumed in thousands per day
iii. Comment on 𝑅̅ 2. Is it too “low”?
Consider the following estimated OLS regression capturing relationship between weight loss and distance walked (values in round brackets are the estimated t-statistics): 𝑤𝑒𝑖𝑔̂ℎ𝑡 = −0.65 − 8.2 ln(𝑤𝑎𝑙𝑘) + 0.35𝑐𝑎𝑙𝑜𝑟𝑖𝑒 (-9.028) (-3.04) (6.604) 𝑅̅ 2 = 0.53 where weight is person’s weight in kilograms, walk is distance walked in km per day, calorie is number of calories consumed in thousands per day
ii. Is the observed negative relationship between ln(walk) and weight justifiable a priori?
e. Consider the following estimated OLS regression capturing the relationship between weight loss and distance walked (values in round brackets are the estimated t-statistics):
𝑤𝑒𝑖𝑔̂ℎ𝑡 = −0.65 − 8.2 ln(𝑤𝑎𝑙𝑘) + 0.35𝑐𝑎𝑙𝑜𝑟𝑖𝑒 (-9.028) (-3.04) (6.604)
𝑅̅ 2 = 0.53
where weight is person’s weight in kilograms, walk is distance walked in km per day, calorie is number of calories consumed in thousands per day
i. Interpret the coefficient on ln(walk). Explain what can we capture by using ln(walk) in the model instead of just using walk.
