11 raw a set of in totall Label these indifference cu when t

11. raw a set of in totall Label these indifference cu when the two goods are perfectcomplements perfect curves Ci, C2.Draw a set of indifference curves for twogoods that are substitutes; labelthese curves SI, S2. 2. A firm can buy a robot for $100 today which will result in extra revenues of $35 althe end of each year (beginning one year today) for 3 years. At the end of from the 3 years therobot can be sold for scrap at $5.Is the purchase of the robot wise? Use the above information, a discount rate of 9%,and the Net Present Value criterion to support your analysis. 3. Define increasing returns to scale, illustrating your definition with i What are some reasons why firms might experience increasing returns to scale? Use graphs to illustrate and explain the income-offer curve of quasi-linear preference and the Engel Curve for the commodity in the non-linear preference part

Solution

(12)

NPV ($) = - 100 + [35 / 1.09] + [35 / (1.09)²] + [35 / (1.09)³] + [5 / (1.09)³]

= -100 + 32.11 + 29.46 + 27.03 + 3.86

= - 7.54

Since NPV < 0, buying the robot is unwise.