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Erin spends all her income on good X and good Y. As the price of good X increases while the price of good Y remains fixed, Erin's price-consumption curve is horizontal.
a) Let the price of good Y be $1 per unit and Erin's income be M. Draw the diagram that illustrates the situation described above.
b) How does Erin's expenditure on good X respond to changes in the price of good X?
c) Is good X a complement or a substitute for good Y? Explain.
d) What is Erin's price elasticity of demand for good X? Explain.
Consider a local market for strawberries in California and assume that the supply and demand functions are given by
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Stanton's marginal tax rate is 40 percent. Stanton expects the equipment will have a marekt salvage value of $10,000 at the end of 4 years. What is the Total Cost at Time Zero of accepting this prject?
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