Question 3 [10 points] Defne Alya is thinking of opening a bakery. She can buy a $ 3000 solar based oven by taking out a loan at 5 percent annual interest. Utilizing her labor and solar based oven she can make gross $9000 per summer. If she produces cookies, she has to bear $1000 cost of gasoline and maintenance. Of her net revenue, 20 percent must be paid as to government in corporate taxes. Suppose that solar based oven can be sold in the secondary market for $ 1550 one year from today. Suppose further that Defne Alya could earn gross $6000. Government asks for 20 percent of individual income in taxes. a. Should Defne Alya purchase the solar based oven? (Hint: Explain your answer applying the necessary Cost and Benefit principle, writing "Yes/No is not sufficient.") (5 points) b. Suppose financial markets clears at the prevailing real interest rate for constant expected inflation. For the following scenario use the demand and supply graph to predict the resulting changes in the real interest rate, quantity supplied, and quantity demanded: "New environmental regulations on CO2 emissions increase the firms cost of operating capital. [2.5 points] c. After the scenario given in b occurs, should Defne Alya change her mind regarding her business plan? (Hint: Explain your answer applying the necessary Cost and Benefit principle, writing Yes/No is not sufficient.") (2.5 points] Question 3 [10 points] Defne Alya is thinking of opening a bakery. She can buy a $ 3000 solar based oven by taking out a loan at 5 percent annual interest. Utilizing her labor and solar based oven she can make gross $9000 per summer. If she produces cookies, she has to bear $1000 cost of gasoline and maintenance. Of her net revenue, 20 percent must be paid as to government in corporate taxes. Suppose that solar based oven can be sold in the secondary market for $ 1550 one year from today. Suppose further that Defne Alya could earn gross $6000. Government asks for 20 percent of individual income in taxes. a. Should Defne Alya purchase the solar based oven? (Hint: Explain your answer applying the necessary Cost and Benefit principle, writing "Yes/No is not sufficient.") (5 points) b. Suppose financial markets clears at the prevailing real interest rate for constant expected inflation. For the following scenario use the demand and supply graph to predict the resulting changes in the real interest rate, quantity supplied, and quantity demanded: "New environmental regulations on CO2 emissions increase the firms cost of operating capital. [2.5 points] c. After the scenario given in b occurs, should Defne Alya change her mind regarding her business plan? (Hint: Explain your answer applying the necessary Cost and Benefit principle, writing Yes/No is not sufficient.") (2.5 points]
