1. Using the table, how many units of land, labor, and capital would you hire? 2
ID: 1092278 • Letter: 1
Question
1. Using the table, how many units of land, labor, and capital would you hire?
2.The marginal revenue product curve is equivalent to the ______________ curve for the input
3.To a firm that is a small player in its factor market the supply of the factor is:
4.Firm A has a 60% chance of success with a $70,000 average profit. Firm B has a 50% chance of success with an $80,000 average profit. Find the expected value for each.
5.A farmer uses a piece of land with the following accounting costs to grow a crop worth $1800. If a normal rate of return is $100 on such an investment, what will the value of the land be for use during this time period?
$150 for seed $100 for fertilizer $80 for herbicides
$20 for water $150 for labor $600 for equipment
$100 for fuel $200 for taxes
6.Suppose that you have a chance to buy some new computer equipment and software that will add to your future profits. It will take a year to have the package designed to your needs, installed, tested and your personnel trained to use it. After that, it will add to your profits for the following 5 years until you expect to change your hardware over again. The project is expected to make you:
Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Increase in Profits
0.00
1,000,000
2,000,000
2,000,000
1,000,000
1,000,000
Present Value
Notice that the project will increase your profits a total of $7 million dollars, BUT that benefit is spread over a 6 year period while the cost is paid now. Find the present value for each year if the interest rate is 6% and then add them together for the total present value of future revenue.
Total PV = ?
If the price of the software is $5 million is it profitable to buy the software?
7.What is the future value in 10 years of $1 million if the interest rate is 4%?
Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Increase in Profits
0.00
1,000,000
2,000,000
2,000,000
1,000,000
1,000,000
Present Value
Explanation / Answer
2.The marginal revenue product curve is equivalent to the _FACTOR PRICE curve for the input
4.
EV=.6 * 70,000 EV=.5 * 80,000
EV= 42,000 EV=40,000
5. you should subtract $1400 accounting costs and the $100 return from the $1800 which would leave you with $300 for the land value
6.
Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Increase in Profits
0
1,000,000
2,000,000
2,000,000
1,000,000
1,000,000
PV
0
943396.2
1779993
1679239
792093.7
747258.2
Total PV = 5941980
Yes the software should be purchased as the PV of the cash flow is greater than the price of the software.
7. Future Value = 1000000*(1+4%)^10 = $ 1480244
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Year
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Increase in Profits
0
1,000,000
2,000,000
2,000,000
1,000,000
1,000,000
PV
0
943396.2
1779993
1679239
792093.7
747258.2
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