15. Consider a single competitive firm that starts off with zero capital in time 1. It's trying to decide hov much capital to acquire in the next period, time 2. Like any real-world competitive firm, it's trying to maximize the net present value of its profits. It'll have to rent that capital from the market at price r>0 per unit of capital when time 2 arrives. We don't have to worry about depreciation-the rental rate is the only price we need to worry about. Output in time 2 is made this way: Y₂ = ZK₂² Where the exponent a is strictly between zero and one and z is strictly positive. This is an entirely conventional firm net present value maximization problem. a. Solve for the optimal level of time 2 capital solely as a function of exogenous parameters b. What is the elasticity of optimal capital with respect to the interest rate? Answer as a function of exogenous parameters: c. In this model, is there such a thing as too much productivity? In other words, can the derivative

15. Consider a single competitive firm that starts off with zero capital in time 1. It's trying to decide hov much capital to acquire in the next period, time 2. Like any real-world competitive firm, it's trying to maximize the net present value of its profits. It'll have to rent that capital from the market at price r>0 per unit of capital when time 2 arrives. We don't have to worry about depreciation-the rental rate is the only price we need to worry about. Output in time 2 is made this way: Y₂ = ZK₂² Where the exponent a is strictly between zero and one and z is strictly positive. This is an entirely conventional firm net present value maximization problem. a. Solve for the optimal level of time 2 capital solely as a function of exogenous parameters b. What is the elasticity of optimal capital with respect to the interest rate? Answer as a function of exogenous parameters: c. In this model, is there such a thing as too much productivity? In other words, can the derivative

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 3P

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Suppose that the XYZ Corp. (which is a profit-maximizing enterprise) produces “gadgets” according to the following production function: Q = 300K + 100KL + 2000L - L^2 , where Q is the number of gadgets per year, K is the amount of capital (machines) that are used, and L is the number of workers employed per year. Gadgets sell for $100 each. a) If XYZ has 10 machines, and workers cost $100,000/year (including benefits and direct ancillary expenses), how many workers should XYZ hire? b) If the workers cost $120,000, how many workers should XYZ hire? c) If workers cost $100,000 but gadgets sell for $80 each, how many workers should XYZ hire? d) If XYZ instead has 20 machines, how many workers should it hire when workers cost $100,000 and gadgets sell for $100?
Question 2 Lamya has initial investment of SR45, 000. If it were to be invested on stocks, the market interest rate would be 0.12 (12%).However, the industry uses capital and labor as inputs and sells 2, 800 belts per month at SR25 market price. If the cost of the machine that produces the belts is SR 30,000 and labor cost is 20,000. Calculate the following: a. Total revenue. b. Opportunity cost of capital c. Economic profit d. Accounting profit e. From your answer in (c), is the business profitable from the economic profit point of view? Explain your answer. Question 3 The table below gives some data on the population of Crescent Highland. Use the provided information to fill the table. YEARS 1 2 3 4 5 6 7 Population: 16 Years Older or Over (Millions) LabourForce (Millions) Employed (Millions) Unemployed (Millions)…
Kindly assist on question 1 and 2 1The difference between zero accounting profit and zero economic profit is that. a) an economic profit of zero indicates a fair return because it includes the opportunity cost of a firms capital. b) an economic profit zero indicates unacceptable rate of return because it does not include the opportunity cost of a firms capital. c) an economic profit of zero indicates more than a fair return because it includes opportunity cost and explicit cost. d) an accounting profit of zero indicates a fair rate of return because it includes the opportunity cost of a firms capital. 2.If a corporation is sued and losses the lawsuit, it's liability to pay. a) is imposed on all stockholders, personally b) is imposed only on the corporate CEO and the board of directors. C) its limited to the assets held in the corporations name. d) is imposed on the bondholders of the corporation
2. A man is considering investing P500, 000 to open a semi-automatic auto-washingbusiness in a city of 400, 000 population. The equipment can wash, on the average, 12 carsper hour, using two men to operate it and to do small amount of hand work. The man plansto hire two men, in addition to himself, and operate the station on an 8-hour basis, 6 daysper week, 50 weeks per year. He will pay his employees P25. 00 per hour. He expects tocharge P25. 00 for a car wash. Out-of-pocket miscellaneous cost would be P8, 500 permonth.He would pay his employees for 2 weeks for vacations each year. Because of the length ofhis lease, he must write off his investment within 5 years. His capital now is earning 15%,and he is employed at a steady job that pays P25, 000 per month. He desires a rate ofreturn of at least 20% on his investment. Would you recommend the investment?a) Use ROR method b) Use present worth method c) Use future worth method d) Solve for the payback period and the IRR
29. What do you understand by retained earning / Ploughing back of profit? State its advantages and disadvantages?
If Costco can’t find enough land in a particular location tobuild its usual store format, should it leverage the Costcobrand name anyway and build something smaller, suchas conventional department stores or grocery stores, inthese areas? Why or why not?
4. Discuss the difference between productivity on the "extensive margin" and "intensive margin" (A bonus will accrue to those who incorporate COVID vaccines and boosters into their answer.)
1. Throughout this course, we have solved many optimization or profit maximizing problems. a. State the rules used for unconstrained (regular) optimization and for constrained optimization. b. Using your own words, explain the rationale behind each stated rule as if you were explaining them to someone who has not yet completed this course: c. What doe economist mean when they use the term marginal? d. State how to compute Profit and explain how account profit and economic profit provides different insights to a firm’s current operations.
Zubair purchases material by Rs. 20,000 per year and pays R. 10,000 for storage space. He recently received two job offers from a famous marketing firm—one offer was for Rs. 250,000 per year, and the other was for Rs. 190,000. However, he turned both jobs down to continue his business. If he sells 50 units of his product per year at a price of Rs. 10,000 each: a. What are her accounting profits? b. What are her economic profits?
3. If a firm had decreasing returns to scale at all levels of output and it divided up into two equal-size smaller firms, what would happen to its overall profits?
5d What is the relationship between accounting profit and economic profit? Which is relevant for a firm’s decision to continue production and why? Give examples as to what may cause a divergence between accounting and economic profit
WW is a small automobile manufacturer. The table below shows WW’s long-run average total cost: Quantity of cars LRATC of car 1 $60,000 2 40,000 3 30,000 4 24,000 5 24,000 6 24,000 7 28,000 8 36,000 which levels of output does WW experience economies of scale? ___________ which levels of output does WW experience diseconomies of scale? ___________ which levels of output does WW experience constant returns to scale? ___________