Economics Home-Work 1

1.

A. Microeconomics

B. Microeconomics

C. Macroeconomics

D. Microeconomics

E. Macroeconomics

2.

A. Positive

B. Positive

C. Normative

D. Positive

E. Normative

3. C

Both are equally likely to attend because they currently have equal marginal costs (Parking, Fuel

etc.) and equal marginal benefits (enjoying the concert). The fact that Mike has paid for his ticket

and Jim has not should not be a factor in the equation because it is an already Sunk cost. Even if

we factor it into the equation, the tickets worth (marginal cost) is equal and that doesnt change

the Economic decision.

4.

A. Yes, I should continue finishing the product because the marginal benefit (3 million dollars) is

greater than the marginal cost (1 million dollars). We should just ignore the initial 5 million

dollars investment since it is an already sunk cost.

5.
Economics Home-Work 1

We should pay a maximum of 3 million dollars to complete our project because that is our

marginal benefit. In order for our investment to make sense, economically speaking, our

marginal benefit should always exceed our marginal cost.

6.

A.

B.

Slope= /change in y/ = 25-0

/Change in X/ 50-0
M=1/2

C. Every time Amanda processes five claims, she loses the opportunity of making 10

Documents. Therefore, her opportunity cost of processing one claim is two documents.

D. Her opportunity cost of processing a claim remains constant at two documents per claim.
Economics Home-Work 1

6.

A. Max has an absolute advantage in making Chocolate Cupcakes.

B. Max has an absolute advantage in making Vanilla Cupcakes.

C. To find out who should make the Chocolate Cupcakes we first need to find out who has the

least opportunity cost in making Chocolate Cupcakes and thus has a comparative advantage.

*Opportunity cost for Pam -15 Vanilla for 16 chocolate

So her opportunity cost for making 1 chocolate=0.9375 Vanilla

*Opportunity cost for Max25 Vanilla for 18 Chocolate

So his Opportunity cost for making 1 Chocolate=1.39 Vanilla

Therefore, Pam has the least opportunity cost in making Chocolate Cupcakes and thus should

specialize in making them.

D. To find out who should make the Vanilla Cupcakes we first need to find out who has the least

opportunity cost in making the Vanilla Cupcakes and thus has a comparative advantage.

*Opportunity cost for Pam is 16 chocolate for 15 Vanilla

So her opportunity cost for making 1 Vanilla=1.067 Chocolate

*Opportunity cost for Max18 Chocolate for 25 Vanilla

So his Opportunity cost for making 1 Vanilla =0.72 Vanilla

Therefore, Max has the least opportunity cost in making Vanilla Cupcakes and thus should

specialize in making them.