hw05key - BINGHAMTON UNIVERSITY Department of Economics...

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BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #5 Answer Key 1. Connor receives a weekly allowance of $20 from his parents that he uses to purchase two goods: Pokemon cards (which cost $5 per pack) and comic books (which cost $4 each). Draw Connor's budget line. Show what would happen if Connor's parents lower his allowance to $15 per week. The budget lines are shown below. When Connor's allowance falls, the budget line shifts in but keeps the same slope. 2. Your friend Harry has quit his $20,000-a-year job to start a business that rents fishing boats. He asks you to lend him $50,000 and agrees to pay you a 10% return on your $50,000 if he earns a profit. During the first year Harry's total revenue is $120,000 and his total cost for equipment and supplies are $100,000. Harry tells you that he cannot pay you any interest this year because he did not earn a profit. Is your friend Harry trying to cheat you? Harry has made an accounting profit of $20,000, but an economic profit of zero.
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hw05key - BINGHAMTON UNIVERSITY Department of Economics...

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