ECN 2101 Microeconomics Exam 3 Answers for calculation questions
November 26, 2012

• 9. rate of return =
  (Java is needed for complete formula)
  The investment is profitable since the rate of return is greater than the interest rate ( 0.03).
  
• 10. If everyone knows about this opportunity, then the rate of return will adjust until it equals the interest rate. The price of the initial investment will become
  (Java is needed for complete formula)
  
• 11.

  
        L        Q       MP          VMP
        0        0
                         30     $    450
        1       30
                         35     $    525
        2       65
                         30     $    450
        3       95
                         28     $    420
        4      123
                         26     $    390
        5      149
                         24     $    360
        6      173
                         22     $    330
        7      195
  
  
  

  L=Labor quantity; Q=Quantity of the output product
  MP=Marginal Product; MRP=Marginal Revenue Product
  Value of the marginal product (VMP) is the same as marginal revenue product (MRP).
  The rule is: if the value of the marginal product (marginal revenue product) is greater than the wage, then hire more workers. The optimum occurs when the value of the marginal product equals the wage. This means that the downward-sloping part of the value of the marginal revenue product curve is the labor demand curve for this individual firm.
• 12. The slopes are very different, meaning there is advantage in specializing and trading.
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• 13. Since the slopes are the same, neither country has a comparative advantage in either good, and there is no advantage in trading. The world production possibility frontier is the straight line connecting the two end points.
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• 14. If the country specializes in apples, it can buy
  (Java is needed for complete formula)
  oranges.
  If the country specializes in oranges, it can buy
  (Java is needed for complete formula)
  apples.
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