# assignment 3 principles of microeconomics 1201

ASSIGNMENT 3
PRINCIPLES OF MICROECONOMICS 1201
Summer 2019
Assigned: July 31, 2019
Due: Aug12, 2019
Instructions:

Late assignment will not be accepted.
Get to the point. Be clear and concise.
You may submit the assignment in a group of up to four students. Make sure you indicate clearly the names and IDs on the cover page of the assignment

Question one
Use the following data to work Problems a and b.
Joe is a computer programmer who earned \$35,000 in 2016. But on January 1, 2017, Joe opened a body board manufacturing business. At the end of the first year of operation, he submitted the following information to his accountant:

He stopped renting out his cottage for \$3,500 a year and used it as his factory. The market value of the cottage increased from \$70,000 to \$71,000.
He sold \$160,000 worth of body boards.

He spent \$50,000 on materials, phone, etc.
He leased machines for \$10,000 a year.
He paid \$15,000 in wages.
He used \$10,000 from his savings account, which earns 5 percent a year interest.
He borrowed \$40,000 at 10 percent a year.

Calculate Joeâ€™s economic profit.
Joeâ€™s accountant recorded the depreciation on his cottage during 2018 as \$7,000. According to the accountant, what accounting profit did Joe make?

Question two
Use the following information to answer problems a,b, and c
Moore â€œfast foodâ€ shop
Most retailers are blaming the economy for their poor sales, but one store chain that sells â€œfast foodâ€ is boldly declaring that an economic downturn can actually be a boom for its business. Last year, Moore â€œfast foodâ€ took in \$20 million in sales, up 5% from the previous year.

According to the above, is â€œfast foodâ€ a normal good or an inferior good? If the price of â€œfast foodâ€ falls and income remains the same, explain how the quantity of â€œfast foodâ€ bought changes.
Describe the substitution effect and the income effect that occur.
Use a graph of a familyâ€™s indifference curves for â€œfast foodâ€ and other goods. Then draw two budget lines to show the effect of a fall in income on the quantity of â€œfast foodâ€ purchased.

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