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Managerial Economics Discussion Questions

1. Do you mow your own lawn or do your own cleaning (if you do not have a lawn)? Use the concept of trade-offs to explain why you make the choice you made. Why might your choice be different than someone like Bill Gates or Oprah Winfrey? Are their trades-offs different from yours? Explain.

2. Briefly describe an example of a financial decision from your business, volunteer work you do, or your own household. List some of the opportunity costs incurred. Identify whether these costs were monetary or non-monetary.

3. Discuss the following statement from the standpoints of both efficiency and equity: "Everyone in society should be guaranteed the best healthcare possible."

4. Classify the following statements as positive or normative. Explain.

a. When a worker is laid-off, they ought to receive unemployment benefits until they find a job.

b. Markets are usually a good way to organize economic activity.

c. India has a comparative advantage over the U. S. in producing textiles.

d. The U.S. should import all of its textiles from India.

Solution Preview

1. Do you mow your own lawn or do your own cleaning (if you do not have a lawn)? Use the concept of trade-offs to explain why you make the choice you made. Why might your choice be different than someone like Bill Gates or Oprah Winfrey? Are their trades-offs different from yours? Explain.
I'm going to assume you do your own cleaning. This question is kind of loaded anyways, it assumes that you do.
I mow my own lawn because the alternatives are paying someone else, or letting it grow. Because I'd like to be able to find my house, the only viable alternative is to pay someone else. I don't make too much more than $20/hour, and I'd probably have to pay the person who cuts my lawn twice that. As such, it makes sense for me to cut my own grass- my time really isn't that valuable. This is at the heart of this question. Take Bill Gates for instance. It's possible that since his retirement from the CEO position at Microsoft, he cuts his lawn for the leisure. However, it's probably more accurate that Bill's time is worth in excess of $1000/hour- certainly he is paid more to speak. So, instead of cutting his own grass, Bill can go give a speech and hire someone to do it for him for the rest of the year with the proceeds. To cut his lawn, Bill has to give up a ten thousand dollar speaking engagement. To cut my lawn, I have to give up time watching television. Clearly I have lower opportunity costs than Mr. Gates, and his tradeoffs are much different. Remember that opportunity cost is the value, monetary or implied, of the next best alternative. Suppose instead of speaking, Bill really likes to sail his Yacht. The value of that Yacht time is $20,000 to Mr. Gates. To mow his lawn, the ...

Solution Summary

The concepts of trade-offs to explain why you make the choice you made is determined. Why you might choose to be different than someone like Bill Gates or Oprah Winfrey is determined.

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