Problem 2: Cost-benefit Analysis and present value calculations. A project costs10 this year (year 0), has a benefit of 35 next year (year 1), and has a cost of 5 next year(year 1).(a) Assuming that the interest rate is r= 1, what is the present value (sum of the dis-counted benefits minus costs) of the project?(b) For what value of interest rater, the present value of the project will be exactly equal to zero? Let r∗ be that value. Explain in two sentences if you expect the present value to be positive or negative if the interest rate is less than r∗. Problem 3: Monopolies. The total cost of producing Q units of output to a monopolist is TC(Q) = 3Q2. The market demand is given by Q= 5−P/2.1 (a) are the total revenue and marginal revenue functions?(b) price should the monopolist set to maximize its profit? Illustrate your answer on a graph.
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