Sum
Find MPC, MPS, APC and APS, if the expenditure Ec of a person with income I is given as Ec = (0.0003) I2 + (0.075) I When I = 1000.
Advertisement Remove all ads
Solution
Given, Ec = (0.0003) I2 + (0.075) I
∴ MPC = `("dE"_"c")/"dI" = (0.0003)(2"I") + 0.075`
∴ MPC = 0.0006 I + 0.075
I = 1000 ....[Given]
∴ MPC = 0.0006(1000) + 0.075
= 0.6 + 0.075
∴ MPC = 0.675
Since MPC + MPS = 1,
0.675 + MPS = 1
∴ MPS = 1 - 0.675
∴ MPS = 0.325
Now, APC = `"E"_"c"/"I"`
`= ((0.0003)"I"^2 + (0.075)"I")/"I"`
`= ("I"(0.0003"I" + 0.075))/"I"`
∴ APC = 0.0003 I + 0.075
I = 1000 ....[Given]
∴ APC = 0.0003(1000) + 0.075
= 0.3 + 0.075
∴ APC = 0.375
Also, APC + APS = 1
∴ 0.375 + APS = 1
∴ APS = 1 - 0.375
∴ APS = 0.625
∴ For I = 1000,
MPC = 0.675, MPS = 0.325
APC = 0.375, APS = 0.625
Concept: Application of Derivatives to Economics
Is there an error in this question or solution?
Advertisement Remove all ads
APPEARS IN
Advertisement Remove all ads
Advertisement Remove all ads