Sue can do her accounting assignment by using: a personal computer; a pocket
calculator, a pocket calculator and a pencil and paper; or a pencil and paper. With a PC,
Sue completes the job in half an hour; with a pocket calculator, it takes 4 hour; with a
pocket calculator and with a pencil and paper, it takes 5 hours ; and with a pencil and
paper, it takes 14 hours. The PC and its software cost $2,000, the pocket calculator
costs $15, and the pencil and paper cost $3.
a. Which, if any, of the methods is technologically efficient?
b. Which methods is economically efficient if Sue's wage rate is
(1) $10 an hour?
(2) $20 an hour?
(3) $50 an hour? (14%)
Venus makes Firecrackers, which she sells in December each year for New year's
celebrations. She must decide how many firecracker production lines to install. Each
production line costs $1 million and operates for only two years after which it must be
replaced. With one production line, Venus expects to sell $590,000 worth of
firecrackers a year. With two production lines, she expects to sell $1,150,000 worth of
firecrackers each year. And with three production lines, she expects to sell $1,680,000
worth of firecrackers a year. The interest rate is 5 percent a year. How many production
lines does Venus install? Explain your answer. (10%)
"Unemployment is bad for the unemployed individual and bad for the nation. Hence
the government should force the unemployment rate to 0 percent." Comment on this
assertion, discussing both its feasibility and its desirability. (16%)
Some economists claim that inflation is always a "monetary phenomenon." What do
they mean by this claim and are they correct? (16%)
"Ask anyone if he or she has enough money. No one ever has enough money, that is,
everyone demands more money. Thus theorizing about the demand for money makes
no sense because this demand obviously is infinite." Correct and comment on the error
in this assertion.(16%)
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