Answer ANY FOUR (4) Questions. Be brief and show your work.
Answer ANY FOUR (4) Questions. Be brief and show your work. QUESTION 1 In a competitive market firm, the operating expenses for a company called SIC Incorporated is given as followed: TC = 361,250 + 5Q + 0.0002Q2 and MC = 5 + 0.0004Q where TC is total cost per year, MC is marginal cost, and Q is the amount of output. The price per unit of output is RM25. a. What is the optimal output of the firm? b. Given your answer in (a), find the maximum economic profit of the firm. QUESTION 2 Units of input (X) Total Product of X (Q) Marginal Product of X (MPX) 1 2 3 4 5 5 9 12 14 15 5 4 3 2 1 Marginal Revenue Product of X (MRPX = MPX x 25) RM125 100 75 50 25 i. Given the price per unit of output is RM25. If the price of input X in the production system depicted in the above table is RM60 per unit, what is the optimal unit of input will the firm use in order to maximize its profit? ii. How in the context of production decisions process is related to marginal revenue product, marginal cost of employment and profit? Explain. iii. When the economics efficiency is achieved in overall economy? Explain. QUESTION 3 Given below is a table that shows production system of an accounting firm in processing tax returns. The firm employs certified public accountings (CPA) to process the tax returns as their labor input. It is assumed that each CPA is equally competent and efficient. Each CPA earns RM70/hour including fringe benefits and each tax returns processed by the CPA will generate RM200 in revenue for the firm. Units of Labor Input Employed (L) Total Product of Labor - no of tax returns processed/hour Marginal Product of Labor (MPL) 1 Average Product of Labor (APL = Q/L) (TP = Q) 0.2 1.0 2.4 2.8 3.0 2.7 1 2 3 4 5 6 0.2 0.8 1.4 0.4 0.2 -0.3 0.20 0.50 0.80 0.70 0.60 0.45 Determine the optimal level of input that is the number of CPAs should be employed by the firm? QUESTION 4 a. A firm called Income Inc. Sdn. Bhd produces two products, disinfectant and air purifier, with the cross-price elasticity of disinfectant and air purifier is 8.The price elasticity for disinfectant is -0.85 while the income elasticity of disinfectant is 4. Based on the types of the elasticity that were given describe what are the two products and what are the relationship between the two products. b. A study examined price and income elasticities for imports and exports in five (5) Asian countries - India, Japan, the Philippines, Sri Langka and Thailand are presented in the following table: Import Price elasticities Income of demand elasticities of demand -0.51 -0.11 -0.91 0.84 -0.17 0.57 -0.48 0.39 -0.20 0.90 India Japan Philippines Sri Langka Thailand Export Price elasticities Income of demand elasticities of demand -0.55 0.45 -0.80 2.84 -1.06 0.89 0.48 0.90 -3.78 0.82 QUESTION 5 The information below indicates the cost and profit/loss for a particular firm. Quantit y (Q) 0 1 2 3 4 5 6 7 Marginal Revenue (MR=P=AR ) Averag e Fixed Cost (AFC) Averag e Variable Cost (AVC) Averag e Total Cost (AC) Total Profit/Los s (Q[PAC] 58 58 58 58 58 58 58 100 50 33.33 25.00 20.00 16.67 14.29 55.70 52.80 51.30 51.20 52.50 55.20 59.30 155.70 102.80 84.63 76.20 72.50 71.87 73.59 -100.00 -97.70 -89.60 -79.89 -72.80 -72.50 -83.22 -109.13 2 Margina l Cost (MC) Margina l Profit (M) 55.70 49.90 48.30 50.90 57.70 68.70 83.90 2.30 8.10 9.70 7.10 0.30 -10.70 -25.90 8 9 10 11 12 58 58 58 58 58 12.50 11.11 10.00 9.09 8.33 64.50 71.70 80.00 89.70 100.80 77.30 82.81 90.00 98.79 109.13 -154.44 -223.29 -320.00 -448.69 -613.56 103.30 126.90 154.70 186.70 222.90 -45.30 -68.90 -96.70 -128.70 -164.90 a. Based on the above information and given that the market price per unit output is P = RM58, how much loss incurs by the firm if the firm decided to shut down its operations and how much loss incurs by the firm if the firm decided to continue its operations? Should the firm cease its operations or continue its operations? Explain your answer and show your work. b. If P = RM50 what will the decision of the firm be? QUESTION 6 Erika expenditures on food (x) and fuel (y) can be expressed in the form of the utility function U = xy. Her marginal utilities are MUx = y and MUy = x. Her daily income to be spend on 20 units of food and 30 units of fuel is RM140 and the price of food is Px = RM4 per unit and the price of fuel is Py = RM2 per unit. Suppose the marginal utility of the last unit of food is 20 and marginal utility of the last unit of fuel is 16. a. Is Erika making the utility-maximizing choice? Show your work. b. If not, what should she do instead and why? c. Find Erika's optimal consumption bundle. What is the MRS at this combination? // EoQ 3
