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equilibrium? Let 𝑝𝑝𝑇𝑇 be the new equilibrium price after introducing the tax. The new
If an excise tax of T=0.5 is imposed, what are the selling price and quantity sold, in

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Homework Assignment 2 – Solutions

12(𝑝𝑝𝑇𝑇 − 0.5) − 4 = 8 − 4𝑝𝑝𝑇𝑇

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Semester A, 2021-2022

𝑞𝑞 𝑆𝑆𝑆𝑆 = 12(𝑝𝑝𝑇𝑇 − 𝑇𝑇) − 4

12𝑝𝑝𝑇𝑇 − 10 = 8 − 4𝑝𝑝𝑇𝑇

𝑞𝑞 𝑇𝑇 = 8 − 4(1.125)
12𝑝𝑝 − 4 = 8 − 4𝑝𝑝

𝑞𝑞 𝐷𝐷𝐷𝐷 = 8 − 4𝑝𝑝𝑇𝑇
𝑞𝑞 𝑆𝑆 = 12𝑝𝑝 − 4
𝑞𝑞 𝐷𝐷 = 8 − 4𝑝𝑝

𝑝𝑝𝑇𝑇 = 1.125
16𝑝𝑝𝑇𝑇 = 18
16𝑝𝑝 = 12
𝑝𝑝 = 0.75

𝑞𝑞 𝑇𝑇 = 3.5
Sub. 𝑝𝑝𝑇𝑇 = 1.125 into the demand function:
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equilibrium before tax:
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Solve for 𝑝𝑝𝑇𝑇 :

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Question 1
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𝑦𝑦0 = −2

𝑦𝑦𝑡𝑡 = + �− � (−2 − )

𝑦𝑦0 = 4
9
5
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𝑦𝑦𝑡𝑡 = 𝑦𝑦 ∗ + 𝑎𝑎𝑡𝑡 (𝑦𝑦0 − 𝑦𝑦 ∗ )

𝑦𝑦𝑡𝑡 = 3 + (2)𝑡𝑡 (4 − 3)
𝑎𝑎 = − 3 and 𝑏𝑏 = 3

𝑎𝑎 = 2 and 𝑏𝑏 = −3
𝑦𝑦 ∗ = − 𝑦𝑦 ∗ + 3
𝑦𝑦𝑡𝑡 = 𝑎𝑎𝑦𝑦𝑡𝑡−1 + 𝑏𝑏

𝑦𝑦𝑡𝑡 = 𝑎𝑎𝑦𝑦𝑡𝑡−1 + 𝑏𝑏

𝑦𝑦 ∗ = 2𝑦𝑦 ∗ − 3
9
5

𝑦𝑦 ∗ = 3
𝑦𝑦𝑡𝑡 = − 𝑦𝑦𝑡𝑡−1 + 3

2 𝑡𝑡

𝑦𝑦𝑡𝑡 = 2𝑦𝑦𝑡𝑡−1 − 3
𝑦𝑦 ∗ =
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3
2
3
2
2
3

9
5
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Time-independent solution:
Fit it into the general form:

Fit it into the general form:

As 𝑡𝑡 → ∞, �− 3� → 0
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As 𝑡𝑡 → ∞, (2)𝑡𝑡 → ∞
2 𝑡𝑡
General solution:

General solution:

Hence, 𝑦𝑦𝑡𝑡 → ∞
Hence, 𝑦𝑦𝑡𝑡 → 5
9
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Question 2
(1)

(2)
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Question 3
𝑊𝑊
�1 − 100� 𝑦𝑦𝑡𝑡−1 working hours at time t-1 remains at time t. Also, the total working

hours will increase by E in each year. Thus,

𝑊𝑊
𝑦𝑦𝑡𝑡 = �1 − � 𝑦𝑦 + 𝐸𝐸 𝑦𝑦0 = 8000
100 𝑡𝑡−1
Fit it into the general form:
𝑦𝑦𝑡𝑡 = 𝑎𝑎𝑦𝑦𝑡𝑡−1 + 𝑏𝑏
𝑊𝑊
𝑎𝑎 = �1 − 100� and 𝑏𝑏 = 𝐸𝐸

Time-independent solution:
𝑊𝑊
𝑦𝑦 ∗ = �1 − � 𝑦𝑦 ∗ + 𝐸𝐸
100
𝑊𝑊
� � 𝑦𝑦 ∗ = 𝐸𝐸
100
100
𝑦𝑦 ∗ = 𝐸𝐸 � �
𝑊𝑊
General solution:
𝑦𝑦𝑡𝑡 = 𝑦𝑦 ∗ + 𝑎𝑎𝑡𝑡 (𝑦𝑦0 − 𝑦𝑦 ∗ )
100 𝑊𝑊 𝑡𝑡 100
𝑦𝑦𝑡𝑡 = 𝐸𝐸 � � + �1 − � (8000 − 𝐸𝐸 � �)
𝑊𝑊 100 𝑊𝑊
Since the company plans to maintain at least its current employment in the future,
we have
𝑦𝑦𝑡𝑡 ≥ 8000
100 𝑊𝑊 𝑡𝑡 100
𝐸𝐸 � � + �1 − � (8000 − 𝐸𝐸 � �) ≥ 8000
𝑊𝑊 100 𝑊𝑊
𝑊𝑊 𝑡𝑡 100 100
�1 − � �8000 − 𝐸𝐸 � �� ≥ 8000 − 𝐸𝐸 � �
100 𝑊𝑊 𝑊𝑊
𝑊𝑊 𝑡𝑡
As �1 − 100� < 1, we should have

100
8000 − 𝐸𝐸 � �≤0
𝑊𝑊
𝐸𝐸 ≥ 80𝑊𝑊
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Question 4
Let 𝑦𝑦𝑡𝑡 be the amount of money at time t.
Case 1: withdraw 𝐼𝐼 at the end of each year:
𝑦𝑦𝑡𝑡 = (1 + 0.09)𝑦𝑦𝑡𝑡−1 − 𝐼𝐼 𝑦𝑦0 = 200000
Fit it into the general form:
𝑦𝑦𝑡𝑡 = 𝑎𝑎𝑦𝑦𝑡𝑡−1 + 𝑏𝑏
𝑎𝑎 = (1.09) and 𝑏𝑏 = −𝐼𝐼
Time-independent solution:
𝑦𝑦 ∗ = (1.09)𝑦𝑦 ∗ − 𝐼𝐼
𝐼𝐼
𝑦𝑦 ∗ =
0.09
General solution:
𝑦𝑦𝑡𝑡 = 𝑦𝑦 ∗ + 𝑎𝑎𝑡𝑡 (𝑦𝑦0 − 𝑦𝑦 ∗ )
𝐼𝐼 𝐼𝐼
𝑦𝑦𝑡𝑡 = + (1.09)𝑡𝑡 (200000 − )
0.09 0.09
At 𝑡𝑡 = 20, 𝑦𝑦𝑡𝑡 = 0:
𝐼𝐼 𝐼𝐼
+ (1.09)20 �200000 − �=0
0.09 0.09
200000(1.09)20
𝐼𝐼 = 0.09 � �
(1.09)20 − 1
𝐼𝐼 = 21909.295

Case 2: withdraw 𝐼𝐼 at the beginning of each year:

𝑦𝑦𝑡𝑡 = (1 + 0.09)(𝑦𝑦𝑡𝑡−1 − 𝐼𝐼)
𝑦𝑦𝑡𝑡 = (1.09)𝑦𝑦𝑡𝑡−1 − (1.09)𝐼𝐼 𝑦𝑦0 = 200000
Time-independent solution:
𝑦𝑦 ∗ = (1.09)𝑦𝑦 ∗ − (1.09)𝐼𝐼
(1.09)𝐼𝐼
𝑦𝑦 ∗ =
0.09
General solution:
(1.09)𝐼𝐼 (1.09)𝐼𝐼
𝑦𝑦𝑡𝑡 = + (1.09)𝑡𝑡 (200000 − )
0.09 0.09
At 𝑡𝑡 = 20, 𝑦𝑦𝑡𝑡 = 0:
(1.09)𝐼𝐼 (1.09)𝐼𝐼
+ (1.09)𝑡𝑡 (200000 − )=0
0.09 0.09
200000(1 + 0.09)20
𝐼𝐼 = 0.09 � � ÷ 1.09
(1 + 0.09)20 − 1
𝐼𝐼 = 20100.27
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= 2166.56

𝑓𝑓 ′ (𝑥𝑥) = 3(2𝑥𝑥 2 + 5𝑥𝑥 + 4)2 (4𝑥𝑥 + 5)

� = 2164.86

𝑓𝑓(𝑥𝑥) = (2𝑥𝑥 2 + 5𝑥𝑥 + 4)3

(𝑥𝑥 − 3)2𝑥𝑥 − 𝑥𝑥 2
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2000 × 1.08 = 2160

(𝑥𝑥 − 3)2
0.08 365

𝑥𝑥 − 3
0.08 4

(𝑥𝑥 − 3)2
𝑥𝑥 2 − 6𝑥𝑥
𝑥𝑥 2
�
365
4

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𝑔𝑔(𝑥𝑥) =
Let 𝑦𝑦𝑡𝑡 be the amount of money at time t.

2000 × �1 +

2000 × �1 +

=
𝑔𝑔′ (𝑥𝑥) =

𝑔𝑔(𝑥𝑥) is discontinued when 𝑥𝑥 = 3.

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(b) Compounded quarterly:
(a) Compounded annually:

(c) Compounded daily:

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Question 5

Question 6
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𝑓𝑓 ′ (𝑥𝑥) 18(2𝑥𝑥 − 1)2

18 �2 �� 3 � + 1� 2 − 1�
1
𝑦𝑦 = 𝑓𝑓(𝑥𝑥) = 3(2𝑥𝑥 − 1)3 + 3

� + 1� � �
𝑦𝑦 = 𝑓𝑓(𝑥𝑥) = 3(2𝑥𝑥 − 1)3 + 3
2
1 𝑦𝑦 − 3 −3

1
2
1
2

2
1 𝑦𝑦 − 3 −3
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�
1
𝑦𝑦 − 3 3

� + 1�
�

�
𝑦𝑦 − 3
=

1
𝑦𝑦 − 3 3

3
1

3
3

3
1
𝑦𝑦 − 3 3
1
𝑦𝑦 − 3 3

�
1
2𝑥𝑥 − 1 = �

18

(2𝑥𝑥 − 1)3 =

�
18
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3
3

𝑓𝑓 −1′ (𝑦𝑦) = 𝑔𝑔′ (𝑦𝑦) =

𝑓𝑓 −1′ (𝑦𝑦) =

(b) Differentiating the explicit expression

𝑓𝑓 −1′ (𝑦𝑦) =
𝑓𝑓 −1 (𝑦𝑦) = ��
𝑥𝑥 = ��
(a) Using the rule for inverse functions

𝑓𝑓 −1′ (𝑦𝑦) =
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Question 7

Then
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= �𝑥𝑥 + (8𝑥𝑥 + 27)5 � �1 + (8𝑥𝑥 3 + 27)−5 (24𝑥𝑥 2 )�

4�
27)5
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4

24𝑥𝑥 2
+
5(8𝑥𝑥 3
When (8𝑥𝑥 3 + 27)5 = 0, 𝑥𝑥 = −1.5 , ℎ′ (𝑥𝑥) is not defined.
ℎ′ (𝑥𝑥) = (8𝑥𝑥 3 + 27)−5 (24𝑥𝑥 2 )

1
1 2
27)5 �

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4
𝑥𝑥 (8𝑥𝑥 3 + 27)−5

= �𝑥𝑥 + (8𝑥𝑥 + 27)5 � �1 +

1
ℎ(𝑥𝑥) = (8𝑥𝑥 3 + 27)5
4

1
5
4
5(8𝑥𝑥 3 + 27)5

1
1 −2
(8𝑥𝑥 3
24𝑥𝑥 2

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1
1 −2
𝑓𝑓(𝑥𝑥) = �𝑥𝑥 +
24 2
1
5

3
=
5
=

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1
2
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1
2

′ (𝑥𝑥)
4

𝑓𝑓
′ (𝑥𝑥)
𝑓𝑓
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Question 8
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