Economics Answers

1.     Suppose you are considering growing and selling maize and you are operating within a competitive market with no influence over price. Assume the current price of maize K70 per 100 kg and the short run cost function, where Q represents bags of maize per year is:

TC = 800 + 16Q + Q²

a)     What is the profit maximizing output?

b)     Calculate the profit for the output you got in (a) above?

c)     Based on the rule that a firm should produce only if it covers its variable costs of production, what quantity should be produced to cover variable costs?

d)    How much are the fixed costs of this business?

Reflection paper about "How the economic machine works" by Ray Dalio

Draw a production possibility frontier with paddy on the horizontal axis and

maize on the vertical axis illustrating these options, showing points A–F.

You have been appointed financial manager of AB Ltd which is listed on the

Johannesburg Stock Exchange. You need to establish the company’s current cost of

capital and you have been provided with the following information:

Ordinary share capital

There are 240 000 shares in issue at a nominal value of R2.00 each. A dividend of

R2.06 as recently been paid and this dividend amount is expected to continue in the

foreseeable future.

17% preference shares – R120 000

The preference shares dividends for the year end 31 December 2020 have been paid.

Similar preference shares are currently trading at 15% yield to maturity.

10% bonds– R1 280 000

The market interest rate for the same class of bonds as AB Ltd, is 12% per annum.

Additional information

AB Ltd’s beta is 1.57. The return on the market is 20%. The current return on Treasury

bills is 8% per annum. The company tax rate is 28% and the company is in a tax paying

position.

Required:

Calculate the WACC

Given the utility fucntion , derive average and marginal utility functions, Find the value of X at which total utility is maximum, and the value of X at which average utility is maximinum

1.     Suppose we have the utility function, U = XY + X + Y.

a.      Find the function for the marginal rate of substitution.

1. If prices are P_x = $2 and P_y = $4, and if income is M = $18, find the utility maximizing consumption bundle.

1.     Suppose we have the utility function, U = XY + X + Y.

a.      Find the function for the marginal rate of substitution.

1. If prices are P_x = $2 and P_y = $4, and if income is M = $18, find the utility maximizing consumption bundle.

• 1.     A consumer has 280 to spend on two commodities, the first of which costs 2 per unit and the second 5 per unit. Suppose that the utility derived by the consumer from x units of the first commodity and y units of the second commodity is given by the  Cobb-Douglas utility functions as:

a)   How many units of each commodity should the consumer buy to maximize utility?

b)   Compute the Lagrange multiplier and interpret in economic terms?

1.     A consumer has 280 to spend on two commodities, the first of which costs 2 per unit and the second 5 per unit. Suppose that the utility derived by the consumer from x units of the first commodity and y units of the second commodity is given by the  Cobb-Douglas utility functions as:

a)   How many units of each commodity should the consumer buy to maximize utility?

b)   Compute the Lagrange multiplier and interpret in economic terms?

Choice 1 A machine is purchased for 60,000. It is a 5 year property class. It will be used for 10 years after which it will have a salvage value of 15,000 It is mostly grey with a metallic cover

The Before Tax Cash Flow will be 80,000 per year. The machine is purchased from Retained Earning cash

outright. It has no extra deductions associated with it

Choice 2 A machine is purchased for 65,000. It is a 10 year property class nhject. It will b used for 12 years with a salvage value of 18,000 it is mostly bice with a white cover. The Before Tax Cash Flow will be 86.000 per year. The machine is purchased from Retained Earnings Cash Outright. It receivers an additional allowance for environmental effects of 5000/yr. The allowance is not taxed and is not included in the 86.000 BTCF

Only one response below is correct

Which of the following statements is true in the third year of operation?

The After Tax Cash Flow of choice 1 exceeds choice 2