FARE 3310 Quiz: Quiz 1 Question 21 Answer productivity.pdf

Question 1 Assume a small scale French farmer sells 100,000 lbs. of milk to a French intermediary company for €2.00 per lbs. The intermediary company package the milk in fancy containers and sells it to Danone for €3.50 per lbs. Danone uses the milk to produce yogurt in its plant in Seville, Spain, Total output will be 6000 container and each container of yogurt for €5.75. How will this string of transactions affect French GDP? How will it affect French GNP? How will it affect Spanish GNP and GDP? Which will be more reflective of the true output for each economy? Explain

Question 2

Consider an open economy described by the following equations (all figures in millions of dollars): Y = C + I + G + NX Y = 8,000 (current value of output) G = 2,000 T = 1,000 + .1(Y) C = 450 + 0.75 (Y – T) I = 2,000 – 40 r NX = 700- 600ɛ (ɛ is the exchange rate) r = r* = 5 a) What is the current state of this economy in term of national saving, investment, the trade balance and the equilibrium exchange rate? b) Suppose government approve an infra structure investment which raises G to 2,250. How would this increase impact what you have calculated in (a) above? c) Now suppose that the world interest rate rises from 5 to 10 percent (G is again 2,000). Would the change in interest have the same impact on National saving and investment? Does it impact the exchange rate? Explain

1. EverKleen Pool Services provides weekly swimming pool maintenance in Atlanta. Dozens of firms
provide this service. The service is standardized, each company cleans the pool and maintains the proper
levels of chemicals in the water. The service is typically sold as a four-month summer contracts. The
market price for the four-month service is $125. EverKleen Pool Services has a fixed cost of $3,500.
The manager of EverKleen has estimated the following cost function:
SMC = 125-0.42Q+0.0021Q2
Where SMC is measured in dollars and Q is the number of pools serviced each summer.
a. At what output level does AVC reach its minimum value? What is the value of AVC at its
minimum point? 
b. Should the firm continue to operate or shut down? Explain why? 
c. What is the optimal output level? Make necessary calculations and clearly highlight the
optimum level 
d. How much profit/loss can the manager of the firm expect to earn? 
e. The fixed costs rise to $4,000. What is the effect of such an increase? Explain. 

1. EverKleen Pool Services provides weekly swimming pool maintenance in Atlanta. Dozens of firms
provide this service. The service is standardized, each company cleans the pool and maintains the proper
levels of chemicals in the water. The service is typically sold as a four-month summer contracts. The
market price for the four-month service is $125. EverKleen Pool Services has a fixed cost of $3,500.
The manager of EverKleen has estimated the following cost function:
SMC = 125-0.42Q+0.0021Q2
Where SMC is measured in dollars and Q is the number of pools serviced each summer.
a. At what output level does AVC reach its minimum value? What is the value of AVC at its
minimum point? (10 pts)
b. Should the firm continue to operate or shut down? Explain why? (15 pts)
c. What is the optimal output level? Make necessary calculations and clearly highlight the
optimum level (15 pts)
d. How much profit/loss can the manager of the firm expect to earn? (5 pts)
e. The fixed costs rise to $4,000. What is the effect of such an increase? Explain. (5 pts)