Fertility vs Literacy Rate

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Vimal Kumar Rai A0067543B

BMU5003 Economic Analysis For Managers Dr. Ivan Png

Individual Assignment 21 April 2010

1. Fertility (D12010, #1)

a. Referring to the linear trend : (i) If the literacy rate is 60%, what is the fertility rate? (ii) If the literacy rate is 100%, what is the fertility rate?

Answer (i) : 7.8 Answer (ii) : 1.4

b. A large cost of having a baby is the time that a mother must invest to bear and rear the child. For a more educated woman, is the value of this time higher or lower?

Answer : For a more educated woman the value of this time is higher. Assuming the higher level of literacy has come about with the investment of time and money (outflow) into education,
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Answer: Laying-up a vessel is a shorter-run decision while scrapping the vessel is a long-run decision.

Laying-up a tanker represents a temporary cut-back on the “supply” of capacity, which will probably be reversed in some time. Scrapping the tanker is a permanent decision that cannot be reversed.

Considering the vessel itself is a huge fixed cost (or sunk cost) with capacity that is necessarily perishable i.e. if it remains unused then at the very least the fixed costs are incurred, laying up the vessel is a short-run decision that could be taken if the marginal revenue from operating it does not at least equal the marginal cost of the operation.

Scrapping the vessel would be to acknowledge that there is no further hope/desire to earn any sort of revenues and that the hit of the sunk costs is willing to be undertaken by the owner. Alternatively, it could be a decision taken after the sunk costs have been recovered and the revenue earned from operating it does not even cover the marginal costs of operating the vessel. Given the huge costs involved, this is likely to be a long-run decision.

b. Explain how the owner of a tanker should decide whether to continue to operate, lay-up or scrap a vessel.

Answer: Assumptions made for this case are as follows – oil tanker demand is predicated on the following factors :

I. Freight rates (and distance to transport the oil being a
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