QUESTION 1

A firm produces according to Q = 3/5K^0.35L^0.65

a. Calculate the average product of labor when the capital is fixed at 12 units and 16 units of labor are used.

b. Find an expression for the MP of labor. Calculate the MP of labor when capital is fixed at 12 units and labor is 16 units, will the MP change if 25 units of labor are used.

c. Suppose the capital is fixed at 12 units and the firm can sell each product at $6 and the minimum wage is $35. How many labor units should the firm hire to maximize profit.

QUESTION 2

a. What is the present value of a SimCity fund with a cash flow of $2000 at 8% interest going into forever?

b. How much will $26,000 be worth in 6 years' time at 9%?

c. The investment required in building a school for 5 years is $800,000 the rentals from fees for 5 years are $250,000, $180,000, $360,000, $450,000 and $80,000 for year 1, 2, 3, 4, 5 respectively. At the end of the 5 years, the building will be sold for $20,000. Will the investment be worth it at 8% per annum?

d. A plot of land would be worth $620,000 in 5 years' time. How much will you have to put off for today at 5% in order to buy the land.