Problem Set

PS#5  Chap. 7:  12, 20,  32,  38, 52,  54,  56,  58,  62,  64.
12.  
      Quantity       Total Cost       Marginal Cost           Average Cost
          1 1.00                         1
1.10
2 2.10 1.05
  1.26
3 3.36 1.12
1.44
4 4.80 1.20
1.45
5 6.25 1.25

20. Opportunity Cost. If you had to take your kids to Kid’s City, that means you had to sacrifice your own time and activity to drive them to the Playground as well as accompany them.  
32. The student needs to learn the principle of opportunity cost. The $600 spent on the regalia means that professor Sneed cannot spend the money on other things such as journals, paper, computers, etc.
38. No, the two punishments do not have the same opportunity cost. Fining the criminal means that he may commit even more crimes in the future. Being sentenced to jail will deny him from committing any more crimes for the time being.
52. a) Sam has the comparative advantage in producing oats. Shirts for Lindsay.
b) Sam : 1/3 for a shirt.
Lindsay: ½ for a shirt.
c) Lindsay will produce 75 shirts and 0 oats, Sam will produce 25 shirts.
300 – 75 = 225 oats.

d)

54.   Out of pocket costs are opportunity costs. And both out of pocket costs and opportunity costs are real costs.
56.   Using the concept of opportunity cost, the baker had to sacrifice the $300 to pay the window instead of spending it on something else. Therefore this does not stimulate economic growth.
58. a) Economist : gives up 2 pages of fiction
Sociologist: gives up 4 page of fiction
b)   Economist : 2/1 = 2
Socialist: ½ x 8/1 = 4
The socialist has the comparative advantage in producing fiction
c)

62.   Canada has absolute advantage in wheat and melons. Canada has a comparative advantage in Wheat, Mexico has a comparative advantage in Melons.  
                Wheat                         Melons
Canada:     5/2                                 2/5  
Mexico:     1/1...