. Clearly provide solutions to the attached questions below.

Explain your arguments with appropriate equations. 3. Consider a two-period small open endowment economy populated by a representative household with preferences described by the following lifetime utility function: U(C, 62) - C. TO CH) where C, and C2 denote, respectively, consumption in periods 1 and 2. Suppose that households receive exogenous endowments of goods given by Q, - Q2 - 10 in periods 1 and 2, respectively. Every household enters period I with some debt, denoted Bo , inherited from the past. Let B; be equal to -5. The interest rate on these liabilities, denoted ro , is 20 percent. Finally, suppose that the country enjoys free capital mobility and that the world interest rate on assets held between periods I and 2, denoted r", is 10 percent. (a) Compute the equilibrium levels of consumption, the trade balance, and the current account in periods 1 and 2. (b) Assume now that the endowment in period 2 is expected to increase from 10 to 15. Calculate the effect of this anticipated output increase on consumption, the trade balance, and the current account in both periods. Compare your answer to that you gave for item (a) and provide intuition for the changes. 9 eECO 101 INTRODUCTION TO MICROECONOMICS Instructions: Answer all six questions. Maximum six pages allowed. You must turn in one file only by the deadline. All answers must be hand written. 1. An entrepreneur is thinking of starting a firm. The firm will pay Tk. 320,000 in wages/salary, Tk. 150,000 on raw materials, Tk. 100,000 for rent per month. If the entrepreneur worked as a manager for somebody else, he would earn Tk. 50,000 per month. The firm's total revenue per month is Tk. 600,000. a) Calculate the accounting profit of this firm. b) Do you think the entrepreneur should start this firm, explain your answer. 2. List the characteristics of the four different types of market structures discussed in class and give an example of each. 3. Suppose you start a business of manufacturing computer software. Assume that this computer software company is a perfectly competitive firm. Your fixed cost per month is Tk. 60,000 and total cost is Tk. 140,000. If you sell 1000 software per month and the average revenue is Tk. 90, what should be your short-run decision regarding shut down and long run decision regarding exit? 4. On x and y axes, draw ATC, AVC and MC curves and four alternative demand curves that the Perfectly Competitive Firm might face. a) Draw DI such that the firm makes a profit. b) Draw D2 such that the firm breaks even (profit=0). c) Draw D3 such that the firm is at its shut down point. d) Draw D4 such that the firm would shut down rather than produce. 5. Suppose the following table contains data of a Monopoly. Output Price (Tk.) Total Cost (TK.) AN N 12 20 35 a. What is the profit maximizing quantity of this firm? b. What price the above firm chooses to sell its output? c. What is the maximum amount of profit? 6. Your friend has discovered a secret formula that lets people do an hour's worth of studying in 5 minutes. So far, he has sold 100 doses, and faces the following average total cost schedule: ATC 99 Tk. 99 100 Th. 100 101 Tk. 101 If a new customer offers to pay your friend Tk. 150 for one dose, should he make one more? Explain