Economics Answers

A firm estimated its AC curve last year and found that

AC = 1000 – 0.05 Q. This year it estimated its ACs and found that they were

AC = 900 – 0.05 Q

Are there increasing or decreasing returns to scale? 

Q = - 50 + 10 L – 0.02 L2

1) Find out MP

2) Find out AP

3) At what level of labor input does the AP curve reach its maximum? What is the MP at this input level?

Explain equilibrium in goods markets and labour markets?

Vhembe Limited has a target capital structure of 60% equity and 40% debt. The before-tax of debt is 8.50% and the cost of new equity is 12%. Tax rate is 28%. The finance manager is currently

considering a project with an expected return of 14% which will be financed from the issue of ordinary shares as all retained income is already budgeted for in more profitable projects. The

company recently issued debentures therefore, the present capital is more heavily weighted towards debt.

Required:

(a) Calculate WACC for Vhembe Limitd using the target capital structure. (4 Marks)

(b) Briefly explain (giving reasons) whether the project under consideration should be accepted or not. (5 Marks)

Vhembe Limited has a target capital structure of 60% equity and 40% debt. The before-tax of debt is 8.50% and the cost of new equity is 12%. Tax rate is 28%. The finance manager is currently considering a project with an expected return of 14% which will be financed from the issue of ordinary shares as all retained income is already budgeted for in more profitable projects. The company recently issued debentures therefore, the present capital is more heavily weighted towards debt.

Required:

(a) Calculate WACC for Vhembe Limitd using the target capital structure. (4 Marks)

(b) Briefly explain (giving reasons) whether the project under consideration should be accepted or not. (5 Marks)

Assess why perfect competition is a more ideal market structure than oligopoly.

Compare the firm’s pricing power between monopoly and monopolistic competition.

Explain the extent of competition among different market structures.

Cite two forms of a market and distinguish between them.

Describe a market using an example.