A firm produces food in this economy. The firm’s total cost and total revenue are given as

TC=200,000+wL+rK,and TR=pQf respectively.

In this equation, TC=total cost, w=wage rate, L is labour units employed, r=is the price of capital, K is the units of capital used in production, TR is total revenue, p is the price of the food and Qf is the quantity produced of food. The average wage rate in the economy is GHS17 whilst the price of capital , r is GHS50,000, Currently, the firm employs 4,000 individuals and uses 30 units of capital.

1. Calculate the profit of the firm if it produces 700,000 units of food at a price of GH7.00 (2%)
2. In this economy wage rate is indexed to the rate of inflation whilst the price of capital is indexed to the exchange rate. The firm has observed that anytime the rate of inflation goes up by 2%, it must adjust the wage rate by 2.3%. Also, anytime the exchange rate depreciates by 1%, it spends 6% more on the cost of capital. Assume the rate of inflation increases by 7% from its current level but unemployment rate, interest rate and per capita income remain unchanged, calculate the new exchange rate (3%)
3. Determine what will happen to the profit of the firm, assuming it charges the same price and produces similar quantity? (3%)
4. To maintain previous profit level, what are some of the strategies available to the firm? (3%)
5. How would each strategy affect the entire economy? (3%)

Answer rating: 100% (QA)

Calculate the profit of the firm if it produces 700000 units of food at a price of GH700 2 ANSWER Total cost 200000 wL rK Total revenue pQf Profit Tot... View the full answer