Econ Homework Key
Name __________________________ _________ last 4 PSU ID _______
Section 001 11:15 SPARKS MWF
Spring 2011 Chuderewicz
YOU MUST USE THIS AS A TEMPLATE – NOTEBOOK PAPER IS NO LONGER ACCEPTED - MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER (you certainly don’t need to type this assignment)– LEAVE THE QUESTIONS AS THEY ARE – AND PLEASE STAPLE! ALSO, PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY. THANKS IN ADVANCE!
Economics 304
Homework #4 – Desired Capital, User Cost and Goods Market Equilibrium
Due Wednesday, 2/16 at the beginning of class – no late papers accepted!
Instructions: Please show all work or points will be taken off. Good luck!
1. PART 1 (35 points total – 5 points for each part and 10 points for the diagram) You own a golf course in Florida and you need to determine how many golf carts you need to buy to maximize profits. Please answer the following questions given the information below.
A brand new golf cart costs 400 rounds of golf and the rate of depreciation is 18% (.18).
The real interest rate is 2% (use .02 in calculations).
The expected marginal product of capital is given by MPKf = 500 – 5K.
a) What is the user cost of capital and what is it expressed in??
b) How many golf carts should you buy to maximize profits (i.e., what is K*)?
Draw a graph (the uc / MPK graph) depicting the state of affairs and label this initial profit maximizing point as point A.
[pic]
A completely labeled and correct graph is worth 10 points.
c) Now suppose the (local) government with all their financial shortfalls embarks on a campaign to raise revenue to fund the fire department by imposing a so-called “luxury tax” (we know it as τ) equal to 20% of gross revenue What happens to the profit maximizing number of golf carts? Please show all work and label as point B on your uc/MPK graph.
d) Now explain
Section 001 11:15 SPARKS MWF
Spring 2011 Chuderewicz
YOU MUST USE THIS AS A TEMPLATE – NOTEBOOK PAPER IS NO LONGER ACCEPTED - MAKE SPACE FOR YOUR ANSWERS BY HITTING ENTER (you certainly don’t need to type this assignment)– LEAVE THE QUESTIONS AS THEY ARE – AND PLEASE STAPLE! ALSO, PLEASE PUT THE FIRST TWO LETTERS OF YOUR LAST NAME IN THE TOP RIGHT HAND CORNER OF THIS PAGE SO THAT WE CAN ALPHABETIZE THESE EASILY. THANKS IN ADVANCE!
Economics 304
Homework #4 – Desired Capital, User Cost and Goods Market Equilibrium
Due Wednesday, 2/16 at the beginning of class – no late papers accepted!
Instructions: Please show all work or points will be taken off. Good luck!
1. PART 1 (35 points total – 5 points for each part and 10 points for the diagram) You own a golf course in Florida and you need to determine how many golf carts you need to buy to maximize profits. Please answer the following questions given the information below.
A brand new golf cart costs 400 rounds of golf and the rate of depreciation is 18% (.18).
The real interest rate is 2% (use .02 in calculations).
The expected marginal product of capital is given by MPKf = 500 – 5K.
a) What is the user cost of capital and what is it expressed in??
b) How many golf carts should you buy to maximize profits (i.e., what is K*)?
Draw a graph (the uc / MPK graph) depicting the state of affairs and label this initial profit maximizing point as point A.
[pic]
A completely labeled and correct graph is worth 10 points.
c) Now suppose the (local) government with all their financial shortfalls embarks on a campaign to raise revenue to fund the fire department by imposing a so-called “luxury tax” (we know it as τ) equal to 20% of gross revenue What happens to the profit maximizing number of golf carts? Please show all work and label as point B on your uc/MPK graph.
d) Now explain