EC111Class4Answers

EC111Class4Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Autumn Term 20011/12 DEPARTMENT OF ECONOMICS Tim Hatton EC111 Class Exercise 4: Outline Answers 1. (a) Price is P = 12 so from the demand function, 12 = 300 – 18q; q = 16. (b) Consumer surplus is the area ABC or ½ × (300 – 12) × 16 = 2304 pence, or ₤23.04. (c) John will be willing to pay any fixed fee that is less then the value of consumer surplus. So he will pay a fee of ₤5 but not a fee of ₤25. 2. We need to know the value of the ladder at the end of the year. Say it is ₤60. We also need to know the interest rate in order to calculate the foregone interest on the ₤100 investment. If the interest rate is 10 percent then the opportunity cost of the funds invested is ₤10. Thus depreciation + foregone interest is ₤40 + ₤10 = ₤50. Finally we need to know the opportunity cost of the window cleaner’s own labour, say ₤6,000. True economic profit is total revenue minus all (opportunity) costs. Using these figures, that would be ₤8,000 – ₤1,000– ₤50 – ₤6,000 = ₤950. B
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 3

EC111Class4Answers - UNIVERSITY OF ESSEX DEPARTMENT OF...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online