Economics Answers

1. A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:

A. Accrued service fees earned of $2,200.

B. Depreciation expense of $8,000.

C. Portion of office supplies (an asset) used $3,100.

D. Accrued salaries of $5,200.

E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of the year.

Determine the correct amounts for the December 31 financial statements by completing the following table:

Assets Liabilities        Equity Net Income

Reported amounts............... $350,000 $200,000   $150,000 $70,000

Add (subtract) to

correct for item:

A…………………………..

B…………………………..

C…………………………..

D…………………………..

E…………………………..

Corrected amounts……… $ $                      $ $

If you were studying the following relationships, which variable would be exogenous and which would be endogenous?

a. The effect of investment growth on the growth rate of GDP.

b. The relationship between the amount of sunshine and plant growth.

c. The relationship between hours of studying and GPA.

Claire consumes 𝑐1 and 𝑐2 in period 1 and period 2 respectively, and her

intertemporal utility function is 𝑈(𝑐1 , 𝑐2 ) = 2𝑐1^2 c2^2. Her income in period 1 is 𝑚1= $1,500 and period 2 is 𝑚2 = $2,000. Assume that the interest rate is 10% for both borrowing and saving. [25%]

a. Find the intertemporal budget constraint for Claire.

b. Find the optimal consumption.

c. Assume now that the interest rate for saving is only 5%. Find the new

intertemporal budget constraint.

d. Would Claire be better off at the new interest rate in (c)? Discuss.

2. The table below shows the output and the total cost of a firm producing wireless

earphones. The firm charges MYR 13 per unit of output. Use this table to answer the

questions which follow. (Show your workings.)

Output

(units)

0 1,000 2,000 3,000 4,000 5,000 6,000

Total

Cost

5,000 13,000 18,000 24,000 32,000 45,000 60,000

i. Calculate the fixed cost and the variable cost when output is 3,000

units.

ii. Calculate the average variable cost when output is 5,000 units.

iii. Calculate total profit if 4,000 units are sold.

iv. Using the data in the table above, draw one graph showing the average

cost and the marginal cost of the firm, labelling them AC and MC.

Find all Nash Equilibria using both pure and mixed strategies. (a)

(b)

H D

F B

HD (1,1) (0, 0) (0, 0) (1, 1)

FB (3,2) (1, 1) (0, 0) (2, 3)

Consider the following payoff of a penalty shooting.

Goalie LR

 L (50, -50) (20, -20) R (40, -40) (90, -90)

Kicker

With which probability should the goalie defend left?

Suppose the total-cost function for a firm is given by .C=qw^2/3 v^1/3

a. Use Shephard’s lemma to compute the (constant output) demand functions for inputs l and k.

b. Use your results from part (a) to calculate the underlying production function for q (q as a function of “k” and “l”).

Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since their product required the least amount of specialized investments for him to use it. They agreed upon price of $7,000. To use Initech’s software, Andrew makes $3,000 in sunk capital investments and spends 70 hours learning how to use Initech’s software, which is very different from other software packages. Both Andrew and Initech view Andrew’s time as worth $25 per hour and Initech is fully aware of the investments Andrew must make to use their product. After Andrew’s investments were made, Initech came to Andrew and asked for more money. 

What do you think is the new price Initech requested Andrew to pay?

Recently, the owner of a Trader Joe’s franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000 and her store made $130,000 in profits (not counting payment to her top manager). She suspected the store could do much better and feared the fixed salary was causing her top manager to shirk on the job. Therefore, this year she decided to offer him a fixed salary of $35,000 plus 16% of the store’s profits. Since the change, the store is performing much better, and she forecasts profits this year to be $270,000 (again, not counting the payment to her top manager). 

Assuming the change in compensation is the reason for the increased profits, and that the forecast is accurate, how much more money will the owner make (net of payment to her top manager) because of this change?

$ 

Does the manager make more money under the new payment scheme?

If a firm manager has a base salary of $100,000 and also receives 6 percent of all profits, what percentage of his/her final income will be from a profit-sharing plan when profit equals $1,500,000?