Question

a.A firm uses capital to produce revenue. The marginal revenue from the first 5 units of capital is as follows: 1st unit has MR 1.6, 2nd unit has MR 1.42, 3rd unit has MR 1.3, 4th unit has MR 1.21, and 5th unit has MR 1.15. If the interest rate is 20%, what is the optimal amount of capital for this firm to borrow?

B. Consider the MR figures in Problem 1. If this firm borrows exactly 5 units of capital, what is the firm's total revenue?

c.Say a household has a wealth endowment of $5 and can use this to either consume (C) or save (S). Savings earn interest of 33% and consumption yields marginal benefit as follows: 1st $1 has MB $1.9, 2nd $1 has MB $1.55, 3rd $1 has MB 1.3, 4th $1 has MB 1.23, and 5th $1 has MB of $1.18.

To maximize the sum of earnings on savings and benefit from consumption, the household should pick

d. Consider the MB schedule described for the household in question 3, and the MR schedule described for the firm in question 1. If the interest rate is 35%, is this a market clearing interest rate? (Check whether supply of funds equals demand for funds)

e. Consider the MR schedule for the firm given in Problem 1, and the MB schedule given for the household in Problem 3. If the interest rate is 22%, then in the market for funds there is The questions above were originaly posted by another students.

Question e, was not done as it reached the limit per Chegg guidelines, BUT I am very interested on Question e as I have no idea how to solve this question. Please show the work. Thank you so much.

Here are the answers to Questions A to D:

a) Total revenue from using 5 units of capital = $6.68

b) 6.68

c) The household will consume till marginal benefit from consumption is greater than the savings With per dollar savings will bring 1.33 rupees. Therefore, the household will consume 2 dollars and save 3 dollars.

d) At 35% interest rate people are saving 3-dollars while firms are hiring 2 units of capital. Therefore the supply is higher than the demand hence 35% is not the market clearing interest rate.

e) ?

Answer 1