Economics Answers

Common stock : The firm's common stock is selling at RM 60. The floatation cost is 3 percent of selling price. At present, the company's growth rate is 5 percent and the latest dividend paid was RM 0.90. Calculate the cost of each alternative if the company is in a 40 percent tax bracket

𝑄! =1000−𝑌×𝑝

Assume the marginal cost of the only firm supplying this market as 𝑀𝐶 = 𝑄/2.

a. Derive an expression of elasticity of demand in terms of Y. Show your work.

1. Derive an expression for the slope of the isoprofit curve of this firm in terms of Y. Explain.
2. Now derive an expression for the markup chosen by this firm in terms of Y.
3. What happens to the elasticity (part a) and the markup (part c) if Y goes up? What
4. can you say about the relationship between elasticity and the markup from this
5. observation? Explain.
6. Calculate the profit maximizing quantity and price for the monopolist. What is the
7. maximized profit? Assume fixed cost is 0.

How does the form of economic system of South Korea and North Korea affect their state of

economy?

Contrast how a market system and a command economy address the problem of resource

allocation.

Why are economic goals important to the economy?

Given that the USD-INR spot rate is 74.28

calculate

a) the 90days forward USD- INR exchange rate,given that the

• *90 days risk free interest rate in US is 1%
• *90 days risk free interest rate in INDIA is 6%

b)the 180 days forward USD-INR Exchange rate given that the

• 180 days risk free interest rate in US is 1%
• 180days risk free interest rate in INDIA is 6%

c) if the risk free interest rate in the US remains same, while the interest rate in INDIA increases by 50bps, how would the calculations in a) & b) change.

Question 2

Table 1 below shows Troy’s consumption choices of three goods. Each observation consists of a set of prices and quantity consumed of the three goods. [25%]

Table 1

Observation 𝑝1 𝑝2 𝑝3 𝑥1 𝑥2 𝑥3 1332844 2212486 3414248

Note: The prices are in dollars and the quantities are in units.

a. Write a table containing the total expenditure of each bundle under each set of prices. List all the affordable bundles at each set of prices.

b. Refer to the table in (a). List all the direct and indirect revealed preferences and explain whether the data satisfies the WARP and SARP.

c. Usethetablein(a)toexplainwhatyouunderstandaboutthetwoproperties of strict order.

d. Suppose that Troy now consumes only good 1 and good 2. The prices and quantities consumed of the two goods remain unchanged for the three observations in Table 1. Sketch a diagram to explain whether WARP and SARP is violated.

Jose consumes only good A and good B. His utility function is C (A, B) = 4AB + 20. The price of good A is $4, but if Jose consumes more than 10 units of good A, the price is $1 higher. The price of good B is constant at $2 and his income is constant at $400. [25%]

a. Formulate Jose’s budget constraint and explain how his budget set changes when he consumes more than 10 units of good A.

b. Refer to the budget constraint in (a). Explain how Jose’s optimal choice and wellbeing change.

c. What other strategies that the government could use to control the consumption of good A? Use a diagram or a budget constraint function to explain one strategy.

d. Does the policy in (c) make Jose worse off? Discuss.

Ketchup is a complement (as well as a condiment) for burger. If the price of burger rises, what

happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?

1.What three decisions are made by profit maximizing firms?

2.Differentiate profits from economic costs.

3.What is the most important opportunity cost included in economic costs?

4.Differentiate long run and short run decisions made by firms.

5.Differentiate production process from production function; marginal product and the law of diminishing returns; fixed costs and variable costs.

6.How does the firm goes about determining how much output to produce?