Answer:
Explanation:
a. Total surplus is the area bounded by points a, b, and c. To calculate total surplus, we use the following formula for the area of a triangle: Area = ½ × Base × Height. The area between the demand curve and the supply curve for the quantity ranging from 0 to 20 is the total economic surplus. This is a triangle with a base (best read off the price axis) of $80, which is the price difference at Q = 0, or between points a and c, and a height of 20 (the number of units purchased in equilibrium). Using these values, we have a total surplus of (1/2) × $80 × 20 = $800.
The consumer surplus is the area between the demand curve and the equilibrium price line. Here we have a base of $40 (the price difference between the demand schedule price at Q = 0, which is $85, and the equilibrium price of $45). The height of the triangle is once again 20 (the number of units purchased in equilibrium). Using these values, we have a consumer surplus of (1/2) × 40 × 20 = $400.
b. Deadweight loss is the difference in total surplus between an efficient level of output Q1 and a reduced level of output at Q2. We can calculate this as the area of a triangle bounded by points bde. The base of this triangle is the difference in prices at points d and e, or $55 – $35 = $20. The height of this triangle is given by the difference in the restricted level of output of Q2 = 15 and the efficient level of output Q1 = 20, or 5 units. Thus, the area of this triangle (the deadweight loss) is equal to (1/2) × $20 × 5 = $50. The remaining total surplus can be found by subtracting the deadweight loss from the original (efficient) total surplus. This is $800 (maximum total surplus) – $50 (deadweight loss) = $750.
c. The deadweight loss from overproduction is the difference in total surplus between an efficient level of output Q1 and an additional level of output at Q3. We can calculate this as the area of a triangle bounded by points bfg. The base of this triangle is the difference in prices at points f and g, or $59 – $31 = $28. The height of this triangle is given by the difference in the additional level of output Q3 = 27 and the efficient level of output Q1 = 20, or 7 units. Thus, the area of this triangle (the deadweight loss) is equal to (1/2) × $28 × 7 = $98. The remaining total surplus can be found by subtracting the deadweight loss from the original total surplus. This is $800 (maximum total surplus) – $98 (deadweight loss) = $702. Note here that we maximize total (producer + consumer) surplus by producing the equilibrium quantity, but we lose surplus from overproduction (inefficient use of resources).
Answer and Explanation:
The preparation of the analysis showing whether the old machine should be retained or replaced is presented below:
Particulars Retained equipment Replace equipment Change in the net income
Variable cost $1,560,000 $1,230,000 $330,000
($520,000 × 3 years) ($410,000 × 3 years)
Cost of the new
machine $300,000 -$300,000
Net change $30,000
As we can see the amount comes in positive which reflects that the machine should be replaced
Answer:
- B. The former program trustee argues that the current inflation measure overcompensates seniors since it ignores the substitution effect.
- C. According to advocates for seniors, the 2020 COLA is not enough to compensate for rising healthcare costs.
- D. Elizabeth Warren has proposed using a new inflation measure that outpaces the current one used.
Explanation:
The article is, ''<em>Social Security checks to rise modestly amid push to expand benefits
'' </em>by<em> Associated Press. </em>
Blahous is a former program trustee who believes that the current inflation adjustment rate at which Social security is increasing is overcompensating seniors because it does not take into account that seniors could be switching to buying cheaper products which is the Substitution effect.
Advocates and the seniors themselves have complained that the 2020 COLA is not enough to meet their current needs especially given the rising cost of healthcare.
Elizabeth Warren and Bernie Sanders both proposed using a new measure for inflation that will adequately compensate the seniors because it outpaces the current one used.
Answer:
$50
Explanation:
Dividend discount model (DDM) is used to calculate intrinsic value of a stock. Since the dividends are expected to grow indefinitely, the formula will be as follows;
Price (P0) = D1 / (r-g)
where D1 = Next year's dividend = 2.50
r = required rate of return = 12% or 0.12 as a decimal
g = dividend growth rate = 7%
Price (P0) = 2.50/(0.12-0.07)
P0 = 2.50 /0.05
P0 = $50
