Question01 A firm pays in cash $250000 in wages, $55430 ininterest on borrowed m

Question

Question01

A firm pays in cash $250000 in wages, $55430 ininterest on borrowed money capital and $74320 for the yearly rentalof its factory building. If the entrepreneur worked for somebodyelse as a manager, he would earn at most $44500 per year and if helent out his money capital to somebody else in a similarly riskybusiness, he would at most receive $16600 per year. Keeping in viewthe above information:

(A)Calculate:

a)The explicit cost of the firm.

b)The implicit cost of the firm.

c)The total cost of the firm.

(B)If the entrepreneur received $495680 from selling hisyears output, then calculate his total profit.

(C)What will be the total profit if theentrepreneur’s total revenue were $413934instead?

(Marks: A = 2+2+2, B = 2, C= 2)

Question02

(A)Find the value of multiplier if:

a)MPC = 0.39

b)MPS = 0.64

(B)If the value of multiplier is 2.49 then findout:

a)MPC

b)MPS

(C)What is the relationship between the value ofmultiplier and MPC?

(D)Find the change in equilibrium level of output whenthere is a $25 increase in investment spending and the MPC is0.75.

(Marks: A = 3, B = 3, C =1, D = 3)

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Explanation / Answer

if MPC decreases, K (Multiplier) will be weaker

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