ECO401

ECO401 Assignment_1 Solution:

1)

A a) Explicit Cost

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Wages + Interest on borrowed Capital + Factory Rent

$250,000 + $55,430 + $74,320 = $379,750

b) Implicit Cost

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Cost of forgone payment he would have received working as a manger = $44,500

Cost of forgone payment he would have received working as a manger = $16,600

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$61,100

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c) Total Cost = Explicit Cost + Implicit Cost = $379,750 + $61,100 = $440,850

B His total Profit = $495,680 - Explicit Cost 379,750 = $115,930

C If sales would have $413,934 then $413,934 - 379,750 = $341842

A a)The size of the multiplier effect is 1/(1-MPC).

so multiplier = 1/1-0.39 = 1/0.61 = 1.639

b) The multiplier is the reciprocal of the MPS

= 1/0.64 = 1.5625

B If the value of multiplier is 2.49 then

MPS = 1/2.49 = 0.4016 MPC = 1-0.4016

= 0.59839

C

if MPC decreases, K (Multiplier) will be weaker

if MPC increases, K will be stronger