Illustrate what would be the effect of increase in taxes

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Reference no: EM1365142

1. Assume you are the manager of a perfectly competitive firm whose short run cost is TC = 100 + 160Q + 3Q2. If the market price is $196, what should you do?

produce 5 units and continue operating

produce 6 units and continue operating

produce zero units (i.e., shut down)

Cannot be determined from the above information.

2. Assume a profit maximizing firm's short-run cost is TC = 700 + 60Q. If its demand curve is P = 300 - 15Q, what should it do in the short run?

shut down

continue operating in the short run even though it is losing money

continue operating because it is earning an economic profit

Cannot be determined from the above information.

You have been appointed "Global Manager" of a firm that has two plants, one in the United States and one in Mexico. Assume, you cannot change the size of the plants or the amount of capital equipment. The wage in Mexico is $5. The wage in the U.S. is $20. Given current employment, the marginal product of the last worker in Mexico is 100, and the marginal product of the last worker in the U.S. is 500.

a. Is the firm maximizing output relative to its labor cost? Show how you know.

b. If it is not, what should the firm do?

Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a $300 increase in taxes once all the rounds of the multiplier process are complete?

Reference no: EM1365142

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