Economics Answers

A firm has been the product function Q= InL +2Ink. Derive the input demand law for both L and K in term of the product price P when the facor prices are PL =2, Ok =8. Hence derive the supply function for the firm product given the out as a function of the product price .

a. The following information is from the national income accounts for country X

Y = C+I+G+(X-M)

C = 20+0.8Yd

T = 30

G = 22

X = 20

M = 4+0.3Y

Yd = Y-T

I=30

informs the above model, list all the endogenous and exogenous variables

Determine the equilibrium values for all the endogenous variables

Given Q=4LK +L^2 , Labour cost is 2 and cost is 1, find the maximum out put and the level k and L at which it is achieve when total input cost are fixed at $105

B. Verify that the ratio of marginal product to price is the same for both input at the optimiub

Mark and Sam formed a management consulting partnership on January 1, 2009. The fair value of the net assets invested by each partner follows:

                                          Mark            Sam

Cash                            $10,000     $20,000

Accounts receivable      10,000         5,000

Office equipment           40,000               -

Land                                -             50,000

Accounts payable        15,000         12,000

During the year, Mark withdrew $10,000 and Sam withdrew $16,000. Net profit for 2009 was $30,000, which is to be allocated based on the original net capital investment.

Requirement:                                                                           

1-   Prepare the appropriate journal entries to record the initial investment and drawings in the partnership for both partners.

2-   Prepare closing entries.

3-   Calculate the ending balance for capital for both partners.

Suppose the intercept of the demand function increases by two (2), while the slope remains the same. If the supply function remains the same, estimate the new equilibrium price and quantity

c. Demonstrate graphically, the effect of the increase in the intercept of the demand function in (b) above on the equilibrium quantity and price. What generalization can you come up with from the resulting graphical analysis? (7 Marks)

Suppose the absolute values of the intercept and slope of the demand function

are approximated to be ten (10) and three (3) respectively. If the absolute

values of the intercept and slope of the supply function are assessed to be six (6),

and five (5) respectively, calculate equilibrium price and quantity (4

Suppose you express the Cobb–Douglas model given in Eq. (7.9.1) as follows:

Yi = β1Xβ2

2i Xβ3

3i ui

If you take the log-transform of this model, you will have ln ui as the disturbance

term on the right-hand side.

a. What probabilistic assumptions do you have to make about ln ui to be able to

apply the classical normal linear regression model (CNLRM)? How would you

test this with the data given in Table 7.3?

b. Do the same assumptions apply to ui ? Why or why not?

An open economy with a government sector is in equilibrium. Assume the following:  Marginal propensity to save = 0.4

Marginal propensity to tax = 0.2

Marginal propensity to import = 0.2

Showing your method of working, calculate by how much the equilibrium level of national income would fall, if injections in the economy are reduced by $60m.

- Suppose the absolute values of the intercept and slope of the demand function

are approximated to be ten (10) and three (3) respectively. If the absolute

values of the intercept and slope of the supply function are assessed to be six (6),

and five (5) respectively, calculate equilibrium price and quantity (4 Marks)

- Suppose the intercept of the demand function increases by two (2), while the

slope remains the same. If the supply function remains the same, estimate the

new equilibrium price and quantity (4 Marks)

- Demonstrate graphically, the effect of the increase in the intercept of the

demand function in (b) above on the equilibrium quantity and price. What

generalization can you come up with from the resulting graphical analysis?

(7 Marks)