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HW1 Answers - Econ 1 Tang Fall Quarter 2007 Homework 1...

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Econ 1: Tang Fall Quarter 2007 Homework 1: Chapters 1 & 2 (Part One on syllabus) Due Wednesday October 10, in class. Please write your name, PID, and section number/TA name on your homework. 1. You own and manage a fruit stand. You can work growing your own bananas to sell as shown in the following table or you can buy bananas to sell for $.25 per pound. For every hour you work growing bananas, you must pay someone $5 per hour to run the fruit stand in your absence. How much time will you spend growing bananas? Hours worked growing bananas Pounds of bananas 0 0 5 200 10 400 15 500 20 620 25 680 30 700 35 720 40 730 Answer: 20 hours Benefit from growing bananas yourself is $.25 per pound saved that you don’t have to spend buying bananas. Cost of growing bananas yourself is the $5 per hour you must pay for someone to run the stand. Create columns for MC and MB. You’ll see that after 20 hours, MC exceeds MB and economic surplus is diminishing. You can see this also by calculating total surplus (total benefit-total cost) at each 5 hour increment, and seeing that it is maximized at 20 hours.
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