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Quiz_1_Ec182A_Version_2_Answers - STATE UNIVERSITY OF NEW...

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STATE UNIVERSITY OF NEW YORK AT BUFFALO DEPARTMENT OF ECONOMICS Economics 182A, Spring 2008 Answers to Version Two of Quiz One Question 1. Simon Scowl is a judge of that new TV show American Idiot. Simon obtains satisfaction valued at $200 from criticizing people who screech before him. He obtains a value of $240 from listening to opera. Simon knows that there is an opera this evening and that it is at the same time as the time when he judges. Simon does not yet have a ticket to the opera but he knows that he can buy a ticket at the opera theatre for $60. (a) What is Simon’s rational choice; judge or attend the opera? Answer: Judge. (1 point for a correct answer.) (b) What is the opportunity cost of Simon’s rational choice? Answer: $240 - $60 = $180. Note: The ticket price of $60 is not a sunk cost because Simon has not yet purchased a ticket. (1 point for a correct answer.) (c) Now suppose that Simon has a third option, which is to stay home this evening eating bonbons and cream puffs, instead of either judging or attending the opera. Simon values this option at $190. Does this alter the answers to (a) and (b)? Answer: The answer for (b) is changed to $190. (1 point for a correct answer.) Question 2. Restin Peace can make at most 100 pizzas or at most 200 sandwiches. His production possibility frontier is a straight line. Restin knows that the market price for pizzas is $10 per pizza and that the market price for sandwiches is $7 per sandwich.
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