Computing Maximun Amount for an Asset, Supply Function, and Consumption of Goods
Using the graph below, develop a two- to four-page response in APA format using the following four-question prompt:
Question 1
What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8%?
Question 2
Suppose the supply function for product X is given by Qxs = −30 + 2Px − 4Pz.
How much of product X is produced when Px = $600 and Pz = $60?
How much of product X is produced when Px = $80 and Pz = $60?
Suppose Pz = $60. Determine the supply function and inverse supply function for good X. Graph the inverse supply function.
Question 3
Suppose the own price elasticity of demand for a good X is −5, its income elasticity is −1, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3.
Determine how much the consumption of this good will change if:
The price of good X decreases by 6%.
The price of good Y increases by 7%.
Advertising decreases by 2%.
Income increases by 3%.
Question 4
A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5.
What is the price of good Y?
What is the consumer’s income?
At point A, how many units of good X does the consumer purchase?
Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium? Is the consumer positively or negatively affected by the price change?
Question 1: What is the maximum amount you would pay for an asset that generates an income of $250,000 at the end of each of five years if the opportunity cost of using funds is 8%?
Where:
* CF $250,000 for each of the 5 years.
* r discount rate (0.08).
* n 5 years.
PV ≈ $1,079,283.85
Question 2: Supply Function for Product X
a) When PX = $600 and PZ = $60:
b) When PX = $80 and PZ = $60:
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