Economic concepts - Several Problems
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Solution Summary
Questions concerning opportunity costs, marginal cost, experience and inferior goods.
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Question #1
We expect economic profits to be __________ accounting profits due to the nature of __________.
A) less than; opportunity costs.
Because opportunity costs decrease profits, economic profits are generally less than accounting profits.
Question #2
Suppose that we observe Dennis working 3 hours per day. What must his marginal cost be?
B) 28.
People work until their marginal cost of working is the same as the marginal benefit, or earnings per hour of labor. At three hours, he earns $84. His hourly wage is therefore $28, and this is his marginal cost.
Question #3
For question 3 refer to the following diagrams.
You have two employees, Lucy and Ethel, and must assign them the tasks of filling candy boxes or stomping grapes. The table to the right gives their respective daily production possibilities frontiers (PPFs). How should you assign these tasks?
A) Lucy should be assigned to candy and Ethel to grapes.
B) Lucy should be assigned to grapes and Ethel to candy.
C) Lucy should do all the work because she has the absolute advantage in each.
D) Ethel should do all the work because she has the absolute advantage in each.
The diagram is missing, but you can determine who should do the work based on the opportunity cost. Look at the trade off each laborer's PPF indicates for stomping grapes. One of them will be able to stomp grapes less expensively, in terms of candy boxes, than the other ...
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