ECO101H1 Lecture Notes - Lecture 2: Sunk Costs, Marginal Cost, Marginal Utility
ECO101H1 Full Course Notes
Related textbook solutions
37.Use the following setup for the next question.
A manufacturing firm is deciding whether or not to invest in a new printer that needs an initial investment of $150,000. The investment would increase cash flows in the first year by $80,000 and in the second year by $75,000.
?If the interest rate is 10% then the net present value of the investment is
|b. ?- $9,091|
How much less of one output can be produced if more of another output is produced.
What combination of outputs is best.
How much output can be produced from a given level of inputs.
debt owed by one government to another government.
government debt owed to citizens.
government debt owed to foreigners.
never be run since they crowd out investment in the short run.
be run on a temporary basis whenever the economy is below potential output.
be run on a permanent basis since they can always be financed over and over again.
passive deficits would not exist.
structural deficits would increase.
structural deficits would not exist.
surplus in that year must be $10 billion.
deficit in that year decreased by $10 billion.
surplus in that year increased by $10 billion.
Reducing the age at which one is eligible to receive payments.
Reducing Social Security retirement benefits.
Introducing means testing.
affected by social but not political forces.
affected by political but not social forces.
affected by both political and social forces.
affect the price mechanism, but not the legal system.
affect the price mechanism through scarcity.
do not affect the price mechanism.
Government ownership of the means of production.
Distribution according to need.
Tradition determines the what, how, and for whom decisions.
if its opportunity cost of producing corn is the same as the opportunity cost in other countries.
if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
regardless of the opportunity cost in other countries.
tuition paid for the year.
value of the next-best activity forgone by attending college.
total money outlays associated with attending college.
the economy is beneath potential income.
inflation is not fully anticipated.
inflation is fully anticipated.
The Group of Eight.
do not need to be enforced in market economies.
must be established before a socialist economy can function properly.
ensure an equitable distribution of income in market economies.
does not change, but debt increases.
does not change and neither does the debt.
the benefit of the activity you would have chosen if you had not taken the course.
the benefit you get from taking this course.
the cost of the activity you would have chosen if you had not taken the course.
avoidance of double taxation.
ease of formation.
greater ability to obtain funds.
the art of economics.
it is just as easy in all of the above
Salvatore Chapter 1:
Discussion Questions: 9. How is the concept of a normal return on investment related to the distinction between business and economic profit?
5. Determine which of the two investment projects a manager should choose if the discount rate of the firm is 10%. The first project promises a profit of $100,000 in each of the next 4 years, while the second project promises a profit of $75,000 in each of the next 6 years.
6. Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 20%.
15. Integration Problem Samantha Roberts has a job as a pharmacist earning $30,000 per year, and she is deciding whether to take another job as the manager of another pharmacy for $40,000 per year or to purchase a pharmacy that generates a revenue of $200,000per year. To purchase the pharmacy, Samantha would have to use her $20,000 savings and borrow another $80,000 at an interest rate of 10% per year. The pharmacy that Samantha is contemplating purchasing has additional expenses of $80,000 for supplies, $40,000 for hired help, $10,000 for rent, and $5,000 for utilities. Assume that income and business taxes are zero and that the repayment of the principle of the loan does not start before 3 years. (a) What would be the business and economic profit if Samantha purchased the pharmacy? Should Samantha purchase the pharmacy? (b) Suppose that Samantha expects that another pharmacy will open nearby at the end of 3 years and that this will drive the economic profit of the pharmacy to zero. What would the revenue of the pharmacy be in 3 years? (c) What theory of profit would account for profits being earned by the pharmacy during the first 3 years of operation? (d) Suppose that Samantha expects to sell the pharmacy at the end of 3 years for $50,000 more than the price she paid for it and that she requires a 15% return on her investment. Should she still purchase the pharmacy?
Spreadsheet Problem (see attached Excel doc)
Using the data below, (Excel doc) where column A represents student numbers, column B the finishing time for a 1 mile race for 10 students, and column C the age of the students, (a) Use the data analysis tools to plot a line graph of all the finishing times. (b) Calculate a mean, median, mode, sample variance, sample standard deviation, and coefficient of variation to statistically describe the data. (c) Use Excel to fine the covariance between the two variables. What does the covariance indicate about the relationship between finishing time and age?
P15(d): Change ââ¦ for $50,000 more than â¦â to ââ¦ for $50,000 less than â¦â Compare the present value of economic profit in each of the next three years and the loss of $50,000 in the third year using 15% as the discount rate.
The spreadsheet problem (b): Calculate a mean, â¦. to statistically describe the data of both variables, Time and Age.
3-1 You won a free ticket to see a Bruce Springsteen concert (assume the ticket has no resale value). U2 has a concert the same knight, and this represents your next-best alternative activity. Tickets to the U2 concert cost $80, and on any particular day, you would be willing to pay up to $100 to see this band. Assume that there are no additional costs of seeing either show. Based on the information presented, what is the opportunity cost of seeing Bruce Springsteen?
3-3 Because of the housing bubble, many houses are now selling for much less than their selling price just 2 to 3 years ago. There is evidence that homeowners with virtually identical houses tend to ask for more is they paid more for the house. What fallacy are they making?
Salvatore Chapter 3:
9. How would you react to a sales managerâs announcement that he or she has in place a marketing program to maximize sales?
1(a). Given the following total-revenue function: TR= 9Q - Q^2
Derive the total-, average-, and marginal- revenue schedules from Q=0 to Q=6 by 1âs.
7. Given the total-cost schedule: Q 0 1 2 3 4
TC 1 12 14 15 20
Derive the average- and marginal-cost schedules.
9. With the total-revenue curve of Problem 1 and the total-cost curve of problem 7, derive the total-profit function and show how the firm determines the profit-maximizing level of output.
DQ9: Does maximum sales (revenue) equal maximum profit (see figure 3-4)?
Revised P1(a): Derive the total-revenue, average-revenue, and marginal-revenue schedules from Q = 0 to Q = 4 by 1s.
Average revenue (AR) = total revenue (TR)/Q
Marginal revenue (MR) = change in total revenue/change in Q
Revised P9: With the total-revenue schedule of Problem 1 and the total-cost schedule of Problem 7, show the profit-maximizing level of output (profit=TR-TC).
Froeb et al. Chapter 4:
4-5 Your insurance firm processes claims through its newer, larger high-tech facility and its older, smaller low-tech facility. Each month, the high-tech facility handles 10,000 claims, incurs $100,000 in fixed costs and $100,000 in variable costs. Each month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs. If you anticipate a decrease in the number of claims, where will you lay off workers?
4-6 A copier company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two new copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity also increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier?