Question

Question01

A firm pays in cash $250000 in wages, $55430ininterest on borrowed money capital and $74320 for the yearly rental of its factory building. If the entrepreneur worked for somebody else as a manager, he would earn at most $44500 per year and if he lent out his money capital to somebody else in a similarly risky business, he would at most receive $16600 per year. Keeping in view the 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 his year's output, then calculate his total profit.

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

(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 is2.49 then finds out:

a)MPC

b)MPS

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

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

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