In: Economics
Perpetual plastic plant makers cost $200 each. The number of plants that your firm expects to produce each year for each level of capital stock is as follows:
Machines: 0 1 2 3 4 5
Plant Production: 0 250 400 500 565 600
The plants sell for $1 each and your firm faces no other costs. The real interest rate is 10% and the depreciation rate of capital is 15%. There is a 20% tax on your firm's revenues from selling these plants. Use these numbers to answer the following 4 questions: 1. What is the firm's tax-adjusted user cost of capital? 2. What is the marginal product of capital for the fourth machine? 3. How many machines should the firm buy? 4. What is the profit after deducting taxes, interest, and depreciation?
In a small open economy
Sd = $20 billion + ($100 billion)?r
Id = $30 billion - ($100 billion)?r
Y = $70 billion
G = $20 billion
r w = 0.04
5. Calculate the current account balance.
6. Calculate net exports.
7. Calculate desired consumption.
8. Calculate absorption.
A country has the per-worker production function yt = 5kt 0.5, where yt is output per worker and kt is the capital-labour ratio. The depreciation rate is 0.2 and the population growth rate is 0.05. The saving function is St = 0.2yt, where St is total national saving and Yt is total output.
9. What is the steady-state value of the capital-labour ratio?
10. What is the steady-state value of output per worker?
11. What is the steady-state value of consumption per worker?
Answer 2
The Third Machine Produces 500 units
The Fourt Machine Produces 565 units
So Marginal Product of 4th Machine is 565-500=65 units
Answer 1
Cost Of 1 machine =200 dollar
Interest Rate 10%= 20 dollar
Depriciation 15%= 30 dollar
So Real cost of 1 Machine= 200+20-(200-30)= 50 dollar
So Firms tax adjusted user cost of capital is 50 dollar
Answer 3
Selling Price of seed=1 dollar
Tax20%= 0.2dollar
Revenue from 1 SEED= 0.8 DOLLAR
If 2 machine are purchased then
Cost of 2 machine=2*200=400dollar
Production= 400 units
Revenue= 400*0.8=320dollar
If 1 machine is purchased then
Cost of 1 machine=1*200=200dollar
Production= 250 units
Revenue= 250*0.8=200 dollar
So Above 2 machine revenue is less than cost
Thus 1 machine needs to be purchased
Answer 4
Since the firm has purchased 1 machine
Cost Of 1 machine =200 dollar
Interest Rate 10%= 20 dollar
Depriciation 15%= 30 dollar
So purchase price of machine= 200+20=220 dollar
Selling Price of 1 machine= 200-30= 170 dollar
Revenue From1 machine= 200 dollar
Thus Profit = (170-220) + 200= 150 dollar