18. On a small tropical island, two firms draw on the same supply of labor and capital. The first _firm produces fish, and in the fishing industry the marginal product of labor is 8 and the mar- ginal product of capital is 5. The second firm produces coconut, and in the coconut industry the marginal product of labor is 64 and the mar- ginal product of capital is 32. a. Show that the allocation of labor and capital between the two industries is inefficient. b. Suggest a reallocation of labor and capital that will enable the island to produce more fish and coconuts without using more resources.

Zanzibar Limited entered into a lease agreement on July 1 2016 to lease some highly customized hydraulic equipment to Kaizen Limited. The fair value of the equipment as at that date was $ 700,000. The terms of the lease agreement were: Lease term 5 years Equipment economic life 6 years Annual rental payment, in arrears (commencing June 30th 2017) $160,000 Equipment residual value $100,000 Guaranteed residual value by Zanzibar $60,000 Incremental borrowing rate 8% Interest rate implicit in the lease 6% Note: the lease is cancellable but only with Zanzibar’s permission At the end of the lease term, the equipment is to be returned to Zanzibar Limited. On July 1, 2016, Zanzibar incurred $12,000 in legal fees for setting up the lease. The annual rental payment includes $10, 000 to reimburse the lessor for maintenance fees incurred on behalf of the lessee. Requirements: a) Discuss the nature of the lease using the appropriate criteria. Justify your answer using calculations where applicable…

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