AK1 - Rice University ECON 211, Fall 2009 Answer Key to...

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Rice University ECON 211, Fall 2009 Answer Key to Problem Set 1 Due on Friday, Sept. 4 1. ( 20 pts. ) You are trying to decide whether to go skiing for the weekend. The cost of skiing: transportation, lift tickets, and accommodation for the weekend costs $300. However, your host will feed you so you will spend no money on food. However, if you go skiing you will lose $120 (after tax) for one weekend day that you will miss work. However, if you work that weekend, you will have to eat out at a restaurant and this will costs you $30. What is the opportunity cost of going skiing? Write down the cost measured in money. The opportunity cost of going skiing is the value of foregone benefits from not spending those resources on the next best alternative use. In this case the opportunity cost of skiing definitely includes the $300 spend on transport, lift tickets and accommodation – since this money could have been spent on alternative goods. The opportunity cost also includes the $120 in wages that you would have earned by not skiing. That $120 could also have been spent on alternative goods. However, you won't spend money on food if you go skiing but will spend $30 on food if you work. So, you save $30 if you go skiing. Therefore, the opportunity cost of skiing measured in money is $300+$120-$30=$390. 2. ( 24 pts. ) Tom is stranded on a desert island and can either sh or f harvest dates. Six points on his production possibilities frontier are given in table below. Dates gathered Fish caught A 54 0 B 50 1 C 42 2 D 32 3 E 20 4 F 0 5 a) Plot these possibilities on a “Dates gathered/Fish caught” grid, label the points, and draw the PPF. (Put Dates gathered on the vertical axis).
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b) If Tom moves from possibility C to D, what is the opportunity cost per Fsh? If he
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AK1 - Rice University ECON 211, Fall 2009 Answer Key to...

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