Question 1 (20 marks) (a) Jenny is working currently as an Accountant. Her current monthly salary is $40,000. Jenny plans to quit her job and start her own business. She has drafted herself an accounting income statement for the coming year if she runs her new business. Drafted Accounting Income statement for the year ended 31 December 2,400,000 Service revenue Less: Expenses Salaries for Andrew (Junior Accountant) Salaries for Sally (Junior Accountant) Depreciation: Office equipment Utility expense 270,000 270,000 42,000 400,000 982,000 1,418,000 Net Income To finance the business, Jenny has to withdraw her time deposit of $1,400,000 with an annual interest rate of 4% from the bank. She can use her premises to set up the office and the monthly rent of an office is $20,000. She will use $420,000 to purchase the equipment and furniture. According to the market information, the resale value of the equipment and furniture is $250,000 after one year. (For question 1 (a) (i) and (ii), NO Accounting vertical format of calculation is accepted and significant mark penalty will be given for wrong data presentation format. Students should make reference to the exercises of tutorial 6 for the correct format of presenting the working steps) after one year. (For question 1 (a) (i) and (ii), NO Accounting vertical format of calculation is accepted and significant mark penalty will be given for wrong data presentation format. Students should make reference to the exercises of tutorial 6 for the correct format of presenting the working steps). i) Calculate the total annual economic implicit costs of Jenny's new business. Show your workings and list the expense items respectively. (5 marks) ii) Calculate the total economic profit of Jenny's new business. Show your workings and list the expense items respectively. (5 marks) iii) Based on your findings, briefly explain whether you support Jenny's plan to start the business. (2 marks) (b) In Country A, there is only one refrigerator factory, Nanasonic which owns all the materials. Currently the firm has the following demand, marginal revenue and marginal cost function: Market demand function: Q =40000-SP Marginal revenue (MR) function: MR= 8000-0.4Q Marginal cost (MC) function: MC = 0.6Q i) ii) State the profit maximization condition and calculate the profit maximizing price and output of refrigerators produced by Nanasonic. (3 marks) Suppose Nanasonic enjoys good time of business condition now. With the aid of a diagram, show the current market situation of Nanasonic and label the figures you obtain from (b)(i) in this diagram. NO explanation is required. (5 marks) Page 4 of 5 Question 2 (20 marks) The market of cookie is perfectly competitive in Country X. Fanny Cookies is one of the 300 price-taker firms in producing and selling cookies. The profit-maximizing output level and price of Fanny Cookies are 900 packs of cookies per month and $250 per pack, respectively. The monthly rent and insurance are $65,000 inclusive. The other monthly expenses including salaries of the pastry chef, utilities expense and miscellaneous expenses are summarized in the table below: Quantity Produced (Packs of cookies) Total Variable Cost ($) 0 500 600 700 800 900 1000 40,000 56,000 75,000 95,000 120,000 165,000 (a) Construct ONE new table based on the above data for Fanny Cookies. Calculate the total cost, marginal cost, and average total cost at each quantity level. Use the following headings for your table. Calculate the figures and round your answers to integers. No working is required. (3 marks) ($) Quantity Marginal Average Produced Cost Cost Total (Packs of ($) Cost cookies) ($) (Remarks: Significant mark deduction if this table is broken into 2 parts or 2 tables.) (S) (a) Construct ONE new table based on the above data for Fanny Cookies. Calculate the total cost. marginal cost, and average total cost at each quantity level. Use the following headings for your table. Calculate the figures and round your answers to integers. No working is required. (3 marks) Cost Quantity Price Total Marginal Average Produced ($) Cost Total (Packs of ($) ($) Cost cookies) ($) (Remarks: Significant mark deduction if this table is broken into 2 parts or 2 tables.) (b) State the profit-maximization rule. Explain whether Fanny Cookies is following the rule to maximize its profit. What is the amount of profit (loss) made by the company? Show your workings. (3 marks) (c) Based on the given information and your answers in parts (a) and (b), draw a set of market-firm diagram for the cookie market in Country X to include the critical data related to prices, quantities and average total cost at the profit-maximizing output level. Label the area of profit/loss according to the way taught in lecture 3, e.g. area bcfg in the diagram. No explanation is needed. (4 marks) (d) In the last quarter, there was a rise in the insurance paid by Fanny Cookie. At the same time, a recent study indicated that there is a higher chance of heart attack for people having a habit of eating cookies every day. As a result, Fanny Cookies could record a break-even state of profitability. Illustrate this circumstance in the same set of market-firm diagram of part (c). Explain how the market of cookies and individual firms like Fanny Cookies are affected in Country X. (10 marks)