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# PROBLEMS AND APPLICATIONS 1. Maria can read 20 pages of economics in an hour.

## Assume the cost to buy an asset today is £100.The current value of the asset

Question: Assume the cost to buy an asset today is £100.The current value of the asset is unknown but you know it will be worth £150 if the price increases next year and £225 if the price increases the second year as well. Further assume that the value of the asset will be £60 if the price decreases next year and £36 if the price decreases the second year as well.Assume the cost to buy an asset today is £100.The current value of the asset is unknown but you know it will be worth £150 if the price increases next year and £225 if the price increases the second year as well. Further assume that the value of the asset will be £60 if the price decreases next year and £36 if the price decreases the second year as well. Answer the following questions if the risk-free interest rate is 8% and the risk-adjusted interest rate is 20%.
i. Construct a two-step Binomial Tree model and show the values of the asset at every node of the Binomial Tree.
ii. Is it worth buying the asset today?
iii. How does your answer to (ii) change if by buying the asset you are also given the option to sell 50% of the asset for £58 after 2 years?

## (b) The marginal revenue of a firm is given by MR-10q²-10q 150 and the marginal

Question: (b) The marginal revenue of a firm is given by MR-10q²-10q 150 and the marginal cost is MC = 10 5q? where q is output. i. Derive an expression for the profit function. ii. What is the level of output that maximizes profits? 10 marks

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Show transcribed image text 100% (1 rating)Transcribed image text: (b) The marginal revenue of a firm is given by MR-10q²-10q 150 and the marginal cost is MC = 10 5q? where q is output. i. Derive an expression for the profit function. ii. What is the level of output that maximizes profits? 10 marks

## (c) The marginal propensity to consume in a country is given by dC 10

Management Assignment Help Question: (c) The marginal propensity to consume in a country is given by dC 10 3- dY Y1/3 where C is consumption and Y is disposable income, and when Y = 20 then C = 10 Find the consumption function of the country. 10 marks

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Show transcribed image text 100% (1 rating)Find the integral for the given varia…View the full answerTranscribed image text: (c) The marginal propensity to consume in a country is given by dC 10 3- dY Y1/3 where C is consumption and Y is disposable income, and when Y = 20 then C = 10 Find the consumption function of the country. 10 marks

## Fill in the blanks. Suppose that a consumer wants to maximize his utility U(x,

Question: Fill in the blanks. Suppose that a consumer wants to maximize his utility U(x, y, z) under one budget constraint P?x P2y P3z = I. (a) (2 pts) Write down the Lagrangian function for this problem.
Show transcribed image textLagrangian function: Objective funct…View the full answerTranscribed image text: Fill in the blanks. Suppose that a consumer wants to maximize his utility U(x, y, z) under one budget constraint P?x P2y P3z = I. (a) (2 pts) Write down the Lagrangian function for this problem.

## Question: QQ2 -Unemployment and the WS/PS model in a post-COVID-19 world COVID-19 pandemic had led to a fall in

Question: QQ2 -Unemployment and the WS/PS model in a post-COVID-19 world

COVID-19 pandemic had led to a fall in global production resulting in people losing jobs and a rising unemployment in 2020. However, as shown in the articles below, the coronavirus pandemic also stimulated innovation and productivity for workers and businesses, e.g. see:
How Innovation Is Driving Productivity During And Beyond The COVID-19 Pandemic
Have we just stumbled on the biggest productivity increase of the century?

Based on the argument given above, use the WS/PS model to illustrate and explain in some detail what would happen to an economy’s equilibrium unemployment in a post-COVID-19 world.
ANSWER The WS-PS model (Layard et al., 1991) is the macroeconomic expression of a set of microeconomic models accounting for an endogenous rigidity of real wage rates and the appearance of what is known as “involuntary” unemployment. The COVID-19 pan…View the full answer

## Suppose a firm can sell it’s output at p per unit and that its

Question: Suppose a firm can sell it’s output at p per unit and that its production function is given by y = AKL, where K> 0 is capital input measured in machine-hours, L> 0 is labor input measured in worker-hours and A, a, 3 > 0 are parameters. The firm is perfectly competitive and the factor prices are r per hour and w per hour. (a) Show by partial differentiation

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Show transcribed image textTranscribed image text: Suppose a firm can sell it’s output at p per unit and that its production function is given by y = AKL, where K> 0 is capital input measured in machine-hours, L> 0 is labor input measured in worker-hours and A, a, 3 > 0 are parameters. The firm is perfectly competitive and the factor prices are r per hour and w per hour. (a) Show by partial differentiation that the production function has the property of increasing marginal productivity of capital (if a > 1) and of labor (if ß > 1). Explain the economic significance of this. Does it explain why we normally assume that a and 3 are less than 1? 10 marks

## please do B part only in 40 minutes please urgently… I’ll give you up thumb definitely

Question: please do B part only in 40 minutes please urgently… I’ll give you up thumb definitely

please do B part only in 40 minutes please urgently… I’ll give you up thumb definitely
Show transcribed image texta) Now note that if , then, Similarly if , then The economic significance of this is that each additional input of production c…View the full answerTranscribed image text: Suppose a firm can sell it’s output at p per unit and that its production function is given by y = AK” L³, where K> 0 is capital input measured in machine-hours, L> 0 is labor input measured in worker-hours and A, a, ß> 0 are parameters. The firm is perfectly competitive and the factor prices are r per hour and w per hour. (a) Show by partial differentiation that the production function has the property of increasing marginal productivity of capital (if a > 1) and of labor (if ß > 1). Explain the economic significance of this. Does it explain why we normally assume that a and 3 are less than 1? 10 marks (b) Suppose that a = 1/3 and 3 = 1/3. i. Write down an expression for the profit function in terms of K and L (recall that the profit is given by the difference between the total rev- enue and the total cost). ii. Find (K, L) that solve firm’s profit maximization problem. iii. Are the second order conditions satisfied? iv. What is the value of firm’s profit at (K*, L)? Is it increasing or decreas- ing in w? Is your finding reasonable? 25 marks

## Module 4: Revenue Management of Gondolas: Maintaining the Balance between Tradition and Revenue Case Summary: Answer with

Question: Module 4: Revenue Management of Gondolas: Maintaining the Balance between Tradition and Revenue Case Summary: Answer with reference to course material. 1. What can be done to increase the capacity of gondolas? What revenue impact would this have? 2. How can you balance revenue maximization with the maintenance of cultural heritage? Is it possible? If so,See the answerSee the answerSee the answer done loadingModule 4: Revenue Management of Gondolas: Maintaining the Balance between Tradition and Revenue
Case Summary:
Answer with reference to course material.

1. What can be done to increase the capacity of gondolas? What revenue impact would this have?

2. How can you balance revenue maximization with the maintenance of cultural heritage? Is it possible? If so, what would you recommend?

3. Consider the pricing structure of the gondolas. What sort of changes would you recommend? How would customers react? What revenue impact would your recommendations have?

Answer : 1A) Revenue impacts * Gondola redesign can help the accommod…View the full answer

## (a) The demand function of a firm is Q=20-4P² 3Pa Where is the demand for

Question: (a) The demand function of a firm is Q=20-4P² 3Pa Where is the demand for the firms product, P is the price of the firm’s product and P, is the price of a competing product. Find i. An expression for the price elasticity of demand in terms of P and Pa. ii. The elasticity of demand when P = 3 and P? = 3. iii. The price P for which the elasticity of demand is

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Show transcribed image text 100% (1 rating)i. Ed= ( dQ/dP)*(P/Q)= [(-8P)P…View the full answerTranscribed image text: (a) The demand function of a firm is Q=20-4P² 3Pa Where is the demand for the firms product, P is the price of the firm’s product and P, is the price of a competing product. Find i. An expression for the price elasticity of demand in terms of P and Pa. ii. The elasticity of demand when P = 3 and P? = 3. iii. The price P for which the elasticity of demand is -1, when P? = 3. 10 marks

## (b) A firm has the following total-cost and demand functions: C=Q³-2Q² 200 3 ?

Question: (b) A firm has the following total-cost and demand functions: C=Q³-2Q² 200 3 ? Q = 50-P i. Write down an expression for the profit function in terms of Q (recall that the profit is given by the difference between the total revenue and the total cost). ii. Find the profit maximizing level of output Q. [Note: Do not forget to check the second order

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Show transcribed image text 100% (1 rating)Transcribed image text: (b) A firm has the following total-cost and demand functions: C=Q³-2Q² 200 3 ? Q = 50-P i. Write down an expression for the profit function in terms of Q (recall that the profit is given by the difference between the total revenue and the total cost). ii. Find the profit maximizing level of output Q. [Note: Do not forget to check the second order conditions]. iii. How do you economically interpret the “first order conditions” for a profit maximization? 10 marks