1. What is an economic choice, and why do all economic choices involve opportunity cost? I once heard someone say that freedom was "whatever I want, as much as I want to, whenever I feel like it." What does economics have to say about this definition of freedom? 2. Acme is a firm that produces knockoffs of slinkies. If the price of the knockoff slinky is $10, Acme will produce 2,200 units of slinkies. If the price fell to $6, Acme would make only 1,600 units of the good. 1) Consider the nature of the relationship between price and quantity supplied for slinkies. Is the relationship positive or negative? 2) Discuss the probable causation, if any. 3) Consider the slope of the graph. What is the slope? 4) This graph is talking to you. Take the information on the graph and try to put that information into words which precisely explain what the graph is telling you 3. How does the production possibilities frontier illustrate scarcity? The production possibilities diagram is talking to you about scarcity. Translate what it is saying into words. How does the production possibilities frontier illustrate scarcity? 4. How does the production possibilities frontier illustrate opportunity cost? The production possibilities diagram is talking to you about opportunity cost. Translate what it is saying into words. How does the production possibilities frontier illustrate opportunity cost? Listen even more closely. How does the production possibilities frontier illustrate the law of increasing marginal opportunity cost? What economic principle is the reason for the law of increasing marginal opportunity cost?
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It involves evaluating the costs and benefits of different options and selecting the one that provides the highest level of satisfaction or utility. All economic choices involve opportunity cost because resources are scarce. Opportunity cost refers to the value Show more…
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1. Consider an economy called Choiceland that has 250 workers and produces only two goods, X and Y. Labour is the only factor of production, but some workers are better suited to producing X than Y (vice versa). The table below shows the maximum levels of output of each good possible from various levels of labour input. Number of Workers Producing X | Annual Production of X | Number of Workers Producing Y | Annual Production of Y 0 | 0 | 250 | 1300 50 | 20 | 200 | 1200 100 | 45 | 150 | 900 150 | 60 | 100 | 600 200 | 70 | 50 | 350 250 | 75 | 0 | 0 a) Draw the production possibilities boundary for choice on a scale diagram, with the production of X on the horizontal axis and the production of Y on the vertical axis. (2 marks) b) Compute the opportunity cost of producing an extra 15 units of X if the economy is initially producing 45 units of X and 900 units of Y. How does this compare to the opportunity cost if the economy were initially producing 60 units of X and 600 units of Y? (2 marks) c) If Choiceland is initially producing 40 units of X and 600 units of Y, what is the opportunity cost of producing an extra 20 units of X? (1.5 marks) d) Suppose now that the technology associated with producing good Y improves, so that the maximum level of Y that can be produced from any given level of labour input increases by 10 percent. Explain and show in a diagram what happens to the production possibilities curve. (2 marks)
Azat N.
Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: $P = 10 - Q$ Marginal Revenue: $MR = 10 - 2Q$ Total Cost: $TC = 3 + Q + 0.5 Q^2$ Marginal Cost: $MC = 1 + Q$, where $Q$ is quantity and P is the price measured in Wiknamian dollars. a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? b. One day, the King of Wiknam decrees that henceforth there will be free trade-either imports or exports-of soccer balls at the world price of \$6. The firm is now a price taker in a competitive market. What happens to domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls? c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain. d. Suppose that the world price was not \$6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would allowing trade have changed anything in the Wiknamian economy? Explain. How does the result here compare with the analysis in Chapter 9?
Assume that a business firm finds that its profit is greatest when it produces $\$ 40$ worth of product A. Suppose also that each of the three techniques shown in the table to the right will produce the desired output. a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique entail profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract? When will that expansion or contraction end? b. Assume now that a new technique, technique $4,$ is developed. It combincs 2 units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial ability. In view of the resource prices in the table, will the firm adopt the new technique? Explain your answer. c. Suppose that an increase in the labor supply causes the price of labor to fall to $\$ 1.50$ per unit, all other resource prices remaining unchanged. Which technique will the producer now choose? Explain. d. "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Evaluate this statement. Does your answer to part $c$, above, bear out this contention? Explain. CAN'T COPY THE TABLE
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