Explain the attached questions.
2. You have collected the following data on output and total variable costs: \" m m m a. b. Identify the range of output exhibiting increasing returns (increasing MP} and the range exhibiting diminishing returns {decreasing MP}. Cmrent xed costs for the company equal $136,5U. Draw two graphs, both with Q on the horizontal axis: one graph shows WC and TC, and the other shows AVG, AC, and MC. Suppose that the government imposes a $T5, property tax hike on all businesses; how will that affect your two graphs; is, which cost curves will be affected and how? Suppose instead that the government consist your production process to he polluting, and iruposes a $35!} tax per unit produced (replacing the property tax in the previous question)- How does this tax increase compare to the property tax increase, in terms of the effect on your company's cost curves? Tfour boss says "either of these taxes is going to force us to change our production levels." Given what you know about optimization analysis, how would you respond? PART 1: BRAD BROOKS-A Continuing Case Your childhood friend, Brad Brooks, has asked you to help him gain control of his per- sonal finances. Single and 30 years old, Brad is employed as a salesperson for a technol- ogy company. His annual salary is $48,000. He claims no exemptions (he enjoys the big refund check in May), and after Social Security, Medicare, and federal, state, and local income taxes, his monthly disposable Income Is $2,743. Brad has recently moved from his comfortable two-bedroom apartment with rent of $600 per month to a condo that rents for $1,000 per month. The condo is in a plush property owner's association with two golf courses, a lake, and an activity center. You review his other monthly expenses and find the following: Renter's insurance $20 Car payment (balance on car loan $10,000; market value of car $11,000) 500 Utilities (gas, electric, Internet) 200 Smartphone 250 Miscellaneous expenses 50 Groceries 200 Clothes 100 Car expenses (gas, insurance, maintenance) 260 Entertainment (dining out, golf, weekend vips) 400 Brad is surprised at how much money he spends on clothes and entertainment. He uses his credit cards for these purchases (the balance is $8,000 and climbing) and has little trouble making the required monthly payments. He would, however, like to see the bal- ance go down and eventually pay It off completely. Brad's other goal is to save $4,000 a year so that he can retire 25 years from now. Brad currently has about $4,000 In his checking account and $200 in his savings account (the balance necessary to receive no-fee checking). He has furniture valued at $1,500 and owns $1,300 of tech stocks, which he believes have the potential to make him rich. Turn to the worksheets at the end of this chapter to continue this case.IS-LM Model (Based on Mankiw Ch. 12 #3). Use the information about the following economy to build the IS-LM model. a. The consumption function is given by C = 300 + 0.6(Y - ). The investment function is / = 700 - 80r. Government spending and taxes are both 500. Graph the IS curve for this economy. Be sure to label the x- and y-axes. b. The money demand function is (M/p) = Y - 200r. The money supply M is 3,000 and the price level P is 3. On the same graph as in part a.), graph the LM curve. c. Find the equilibrium interest rate r and the equilibrium level of income Y. Label the equilibrium values on your graph. d. Suppose that government spending is increased from 500 to 700. How does the IS curve shift? What are the new equilibrium interest rate and level of income? Show the shift and the new equilibrium on your graph. e. Suppose instead that the money supply is increased from 3,000 to 4,500. How does the LM curve shift? What are the new equilibrium and level of income? On a new graph, show the original IS and LM curves and then show the shift and the new equilibrium. f. With the initial values for monetary and fiscal policy, suppose that the price level rises from 3 to 5. What happens? What are the new equilibrium interest rate and level of income? On a new graph, show the original IS and LM curves and then show the shift and the new equilibrium. g. . For the initial values of monetary and fiscal policy, derive and graph an equation for the aggregate demand curve (Hint: Solve the IS and LM curves in terms of r. Then combine them and solve for Y in terms of P.). What happens to this aggregate demand curve if fiscal or monetary policy changes, as in parts d.) and e.) (simply state which direction the aggregate demand curve shifts in each case)
