Assignment One 20061345

Question One

Year 1 2 3 4 5 6 7 8 9

Capital 200 210 230 230 225 220 220 215 225
Stock

Gross NA 15 25 10 5 5 10 10 10
Investment

Net NA
Investment

Depreciation NA

% Change in NA
Capital
Stock

(a)
Capital good: A good that produces another good.
Gross investment: Total amount outlaid on capital over a given period.
Net investment: Capital expenditure less depreciation of capital over a given period.
Depreciation: A deduction made for a loss in value of capital.

(b) See table above

(c) See table above

(d)
If depreciation is higher than gross investment in a given period, net investment will
be a negative number. If a country’s labour force struggle to find employment during
times of recession or if it is depleted during times of total war, capital expenditure is
significantly lowered, and the decline in value of current capital may result in
negative net investment.

(e) See table above

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Question Two

(a)
Accounting Profit is equal to revenue less expenses. In this example accounting profit
is 220 000 – 100 000 = $120 000
Economic Profit is equal to revenue less explicit costs and implicit costs. In this
example economic profit is 220 000 – 100 000 – 60 000 – 40 000 = $20 000
(b)
Accounting profit = 220 000 – 100 000 – 40 000 = $80 000
Economic profit = 220 000 – 100 000 – 60 000 – 40 000 = $20 000
(c)
If I’m only interested in money economic profit will indicate when I should make a
move from maritime fixtures to accounting.

Year 1 220 000 – 100 000 – 60 000 – 40 000 = 20 000

Year 2 220 000 – 100 000 – 60 000 – 45 000 = 15 000
Year 3 220 000 – 100 000 – 60 000 – 50 000 = 10 000
Year 4 220 000 – 100 000 – 60 000 – 55 000 = 5 000
Year 5 220 000 – 100 000 – 60 000 – 60 000 = 0
Year 6 220 000 – 100 000 – 60 000 – 65 000 = -5 000

In 5 years I’ll be breaking even, in 6 years I’ll be making more money in accounting
and will close my business.

Question Three

Year 1 2 3 4 5 6 7 8 9

CPI 100 105 115 116 110 95 105 105 110

Inflation NA
Rate

(a) See table above

(b) In what years was there inflation?

(c) In what years was there deflation?

(d) In what years was there falling inflation?

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 Question Four

(a)
P = 10 000 – 400y
Constants: 10000 and 400
Coefficient: 400
Independant variable: y
Dependant variable: P

(b)
P = f (y)

(c) Price

10 000
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000

Time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

(d) What will be the book value in the 16th year?

10 000 – 400(16) = $3 600