MM50 - MANAGERIAL ECONOMICS

Program Magister Manajemen

Universitas Persada Indonesia - YAI
December 12, 2020
Problem Set 8 ( Lecturer: Irsan Azhary Saleh )

______________________________________________________________________________________________
Deadline: Wednesday - December 16, 2020 at 16:00 wib
1. Suppose that in the year 2010, Merpati Electronics planned to produce 950,000 units of its
portable GPS devices. Of the 950,000 it planned to produce, a total of 25,000 units would be
added to the inventory at its new plant in Karawang. Also assume that these units have been
selling at a price of $100 each and that the price has been constant over time. Suppose further
that this year the firm built a new plant for $5 million and acquired $2.5 million worth of
equipment. It had no other investment projects, and to avoid complications, assume no
depreciation.
Now suppose that at the end of the year, Merpati had produced 950,000 units but had only sold
900,000 units and that inventories now contained 50,000 units more than they had at the
beginning of the year. At $100 each, that means that the firm added $5,000,000 in new inventory.
a. How much did Merpati actually invest this year?
b. How much did it plan to invest?
c. Would Merpati produce more or fewer units next year? Why?

2. Suppose that the government of Lumpland is enjoying a fat budget surplus with fixed
government expenditures of G = 150 and fixed taxes of T = 200. Assume that consumers of
Lumpland behave as described in the following consumption function:
C = 150 + 0.75(Y - T)
Suppose further that investment spending is fixed at 100. Calculate the equilibrium level of GDP
in Lumpland. Solve for equilibrium levels of Y, C, and S. Next, assume that the Republican
Congress in Lumpland succeeds in reducing taxes by 20 to a new fixed level of 180. Recalculate
the equilibrium level of GDP using the tax multiplier. Solve for equilibrium levels of Y, C, and S
after the tax cut and check to ensure that the multiplier worked. What arguments are likely to be
used in support of such a tax cut? What arguments might be used to oppose such a tax cut?

3. Assume the following for the economy of a country:

a. Consumption function: C = 85 + 0.5Yd
b. Investment function: I = 85
c. Government spending: G = 60
d. Net taxes: T = - 40 + 0.25Y
e. Disposable income: Yd ⬅ Y - T
f. Equilibrium: Y = C + I + G
Solve for equilibrium income. (Hint: Be very
careful in doing the calculations. They are not
difficult, but it is easy to make careless mistakes
that produce wrong results.) How much does
the gov-ernment collect in net taxes when the
economy is in equilib-rium? What is the
government’s budget deficit or surplus?

-----ias/06-2020-----