Answers_Practice Problems_060613(1) - Answer Key(updated...

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Answer Key (updated 6_6_2013) Week 1 Chapter 2 Multiple Choice Key 1. B 2. D 3. D 4. A 5. A 6. B 7. D 8. C 9. B 10. B Chapter 3 Multiple Choice Key 1. A 2. D 3. D 4. A 5. B 6. C 7. D 8. A 9. C 10. C Short Answer 3-2 Concert Opportunity Cost 2 What you paid three months ago is irrelevant to your costs now. The decision you are facing is to attend the concert or not. If you do not attend, you can sell the tickets for $225 (ignoring any brokering fees and hassle costs). Thus, you forego $450 to attend the concert. 3-5 Starbucks There could be many hidden costs. Here are a few examples: Some of Starbucks current baristas are underage and are not permitted to serve alcohol. Hiring new bartenders may raise the labor costs. The storage and preparation of cold drinks, like beer and wine, differs considerably from the storage and preparation of hot drinks, like coffee. This suggests two separate “production lines” at each store.
The Starbucks brand is known for signaling a quiet, comfy place to linger in small groups or alone. Serving alcohol may change the atmosphere enough that traditional coffee drinkers in the afternoon and early evening will be turned off. The Starbucks brands is also known for high quality coffees that are high quality partly because of the care in choosing beans, roasting them and brewing on the premises. It is not clear that there is much scope for care in 'preparing' beer and wine beverages to add similar value. If not, this brand extension could dilute the signal of the brand. Week 2 Chapter 4 Multiple Choice Key 1. C 2. C 3. A 4. C 5. C 6. C 7. C 8. C 9. A 10. C Short Answer 4-2 Game Day Shuttle Service Marginal Cost is the change in costs due to the additional customer. Q TC MC Tot Rev Profit 1 30 10 -20 2 32 2 20 -12 3 35 3 30 -5 4 38 3 40 -2 5 42 4 50 8 6 48 6 60 12 7 57 9 70 13 8 68 11 80 12 Since marginal revenue is the price of $10, you will serve customers up to the point where MC > MR or you will serve 7 customers.
Chapter 5 Multiple Choice Key 1. C 2. B 3. D 4. A 5. B 6. C 7. D 8. D 9. D 10. C Short Answer 5-2 Net Present Value Yes, the project has a positive NPV, so it is profitable NPV = -$100 + 50/1.2 + 50/1.2 2 + 50/1.2 3 = -$100 + 41.67 + 34.72 + 28.94 = $5.33 5-3 Doctor’s Human Capital If the Canadian doctors can relocate to the United States or to another country where they can earn a competitive rate of return on their human capital, then the capital is fixed and cannot be expropriated by the Canadian government. But, if Canadian doctors are unwilling or unable to migrate to another country, then their human capital is sunk and can be expropriated by the Canadian government, at least in the short-run. In the long-run, the Canadian government will get exactly what they pay for, i.e. lower-quality medical care, because reducing the rewards for investing in human capital reduces investment in human capital. In the long-run we would expect Canadian doctors to have less human capital than those in the United States. Week 3 Chapter 6 Multiple Choice Key 1. D 2. D 3. A 4. B 5. D 6. B 7. B 8. D 9. C
10. A Short Answer 6-1 Elasticity of T-shirt Sales The elastic formula is e = (Q 1 -Q 2 )/(Q 1 +Q 2 ) × (P 1 +P 2 )/(P 1 -P 2

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