Acme Manufacturing is producing 4060000 worth of goods this

Acme Manufacturing is producing $4,060,000 worth of goods this year and expects to sell its entire production. It also is planning to purchase $1,500,000 in new equipment during the year. At the beginning of the year, the company has $500,000 in inventory in its warehouse. Find ACTUAL investment and PLANNED investment investment if:

  a. Acme actually sells $3,850,000 worth of goods.

  b. Acme actually sells $4,000,000 worth of goods.

  c. Acme actually sells $4,200,000 worth of goods.

find the actual investment and planned investment of a. b. and c.

Assuming that Acme’s situation is similar to that of other firms, in which of these three cases is output equal to short-run equilibrium output?

Case c

Case a

Case b

None

Comment

Solution

(1)

(A) Actual investment = Beginning inventory + Production - Actual sale

(a) Actual investment = $(500,000 + 4,060,000 - 3,850,000) = $710,000

(b) Actual investment = $(500,000 + 4,060,000 - 4,000,000) = $560,000

(c) Actual investment = $(500,000 + 4,060,000 - 4,200,000) = $360,000

(B) Planned investment = Beginning inevntory + Planned investment during year + Production - Actual sale

(a) Actual investment = $(500,000 + 1,500,000 + 4,060,000 - 3,850,000) = $2,210,000

(b) Actual investment = $(500,000 + 1,500,000 + 4,060,000 - 4,000,000) = $2,060,000

(c) Actual investment = $(500,000 + 1,500,000 + 4,060,000 - 4,200,000) = $1,860,000

(2)

In no case is output equal to equilibrium output because actual investment is lower than planned investment in all cases.