Econ 601: Basic Economic Analysis
Assignment #2
Answer Key
Text Questions :
1. a. Both individuals and businesses must balance the costs of their decisions against the benefits of their decisions. b. Specifically, individuals weigh the benefits or utility of an action vs. the costs of the action in order to maximize their satisfaction. Businesses weigh the revenue from a product vs. the cots of producing the product in order to maximize their profit.
2. a&b. The total benefit, total cost, and net benefit are, respectively, as follows:
0 hours, 0,0,0
1 hour, 60,5,55
2 hours, 100,15,85
3 hours, 130,35,95
4 hours, 150,65,85
5 hours, 160,105,55
6 hours, 160,160,0 c. 3 hours, 95 points d. Graphical answer.
3.Economic profit=TR-TC. TC includes both the explicit costs of production and the implicit costs of production. Your aunt has only included the explicit costs that totaled
$150,000. If the implicit costs are included, the business suffers an economic loss of
$5,000.
1.B
2.A
3.B
4.A
5.C
6.C
7.A
8.B
9.C
10.B
4. a. The MR and MC for each additional unit of output are, respectively
1 unit $50,$25
2 units $40, $10
3 units $30, $5
4 units $20, $10
5 units $10, $20
6 units $0, $30
7 units -$10, $40, 8 units -$20, $60
Multiple Choice: