ECO401 Ass # 1

Question no 1
A 


a) Explicit Cost


Wages + Interest on borrowed Capital + Factory Rent
$250,000 + $55,430 + $74,320 = $379,750

b) Implicit Cost

Cost of forgone payment he would have received working as a manger = $44,500
Cost of forgone payment he would have received working as a manger = $16,600
Answer : $61,100

c) Total Cost = Explicit Cost + Implicit Cost = $379,750 + $61,100 = $440,850



Part B His total Profit = $495,680 - Explicit Cost (379,750) = $115,930


Part C If sales would have $413,934 then $413,934 - 379,750 = $34184


Question no 2


Part A
a)

The size of the multiplier effect is 1/(1-MPC).
so multiplier = 1/1-0.39 = 1/0.61 = 1.639



b) The multiplier is the reciprocal of the MPS

= 1/0.64 = 1.5625



Part B If the value of multiplier is 2.49 then


MPS = 1/2.49 = 0.4016

MPC = 1-0.4016 = 0.59839

Part C

The value of multiplier is directly related to the magnitude of MPC.


Part D


= 1/1-0.75 =4

= delta y = K( delta L)
=4 (25$)
=100$


Data Source:-

Reference Book ( Schaum's outline of theory and problems of Principles of economics, second edition)
( Question 1 ) (Page no 265) and ( Question 2 ) (Page no 127)



and web link of book is

http://www.docstoc.com/docs/8557586/Principles-of-Economics
( Question 1 ) (Page no 116) and ( Question 2 ) (Page no 61)


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