Economics Chapter 14 Answers

Q.1) Compute the following quantities for the current production process as well as for Mike’s and Ike’s plans, assuming the plans are implemented as described in the case.

1. When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is ( )

ee = (dQe/dPe)*(Pe/Qe) ; dQe/dPe is the coefficient of price in the approximated demand equation.

1.  Increased demand for a product or service will usually result in lower prices for the item.  FALSE

based upon a doubling of production. This means every time that the production doubles, there is

Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s

The firm initially produces where MR=MC charging price P1 and quantity Qa. At this price the firm has a large amount of

12) Suppose that we force the production of one unit of product A. The new objective function value will be

II. When price falls from 4 pounds to 3 pounds the demand for travel increases to 80,000 units- At the original market price of 4 pounds the demand for travel was 60,000 units generating revenue of 240,000 pounds. When the price is reduced to 3 pounds the resulting demand is 80,000 units and this also generates income of 240,000 pounds. When market price changes and the resulting revenue remains the same it can be said that price elasticity of demand is unitary in

Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of

To illustrate this utilizing standard demand and supply, the graph at the end of this assignment can be viewed. The red line, noted as S1, indicates

These conclusions correspond to the claim of the quantitative theory that money is the primary determinant of nominal income. If thus the rate of money circulation does not change (here the rate need not necessarily by a constant ), then money exclusively determines changes in the price level and nominal income, so monetary policy can, through regulating the development of the individual money aggregates (M1, M2, etc.), influence macroeconomic variables and predict their development.

d) The opportunity cost should be calculated as the resource cost of producing the input.

complex. The basic objective here is that of taking the cost of expected production operations in the

sales volume ⎞ ⎛ unit variable sales volume ⎞ ⎛ unit fixed ⎜ ⎟ −⎜ ⎟ − ⎜ sales price × ⎟ ⎜ expense × ⎟ expenses = 0 in units ⎠ ⎝ in units ⎠ ⎝