Question
Question 1. If people do not have a complete mental picture of total utility for every level of consumption, how can they find their utility-maximizing
Question 1.
If people do not have a complete mental picture of total utility for every level of consumption, how can they find their utility-maximizing consumption choice?
Answer:
Question 2.
A firm is considering an investment that will earn a 6% rate of return. If it were to borrow the money, it would have to pay 8% interest on the loan, but it currently has the cash, so it will not need to borrow. Should the firm make the investment? Show your work.
Answer:
Question 3.
A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method choices are:
Method 1: 50 units of labor, 10 units of capital
Method 2: 20 units of labor, 40 units of capital
Method 3: 10 units of labor, 70 units of capital
If hiring labor for the winter costs $100/unit and a unit of capital costs $400, what is the best production method? What method should the company use if the cost of labor rises to $200/unit?
Answer:
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