Question

Economists in the ministry of agriculture in Kwale County have estimated the following market model for fertilizer based on annual time series data on price and quantity in thousands. The government intends to reduce the market price by 20% per bag as requested by the farmers. Consequently, it will buy the excess output if any at the market equilibrium price. Alternatively a new plant costing 20 million with a life time of five years, producing 5million worth of fertilizer annually can be constructed. Assuming a 10% market rate of return, what should the county government do?

b. The telecommunication industry is debating on whether to fix the calling rates for mobile phone operators. However, this move is against the free market spirit. Similarly the calling rates are not uniform in the whole industry. What is the rationale for such a move? Is it justified?
c. Income tax and Value added tax-VAT are sources of revenue for the government. To cater for more revenue needs in the counties, the government may wish to adjust one of the tax rates by 5%. As an economist in the consumer federation board, what would be the best alternative?
c. Discuss the cob web model and its significance in maize market regulation in Kenya.