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Micro2Solutions - Prep101 www.prep101.com/freestuff Q1 Kyle...

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©Prep101 www.prep101.com/freestuff Page 1 of 33 Q1. Kyle is a recent graduate of a high school. He faces two options: attend a local college or start working at the local gas station. The pay at the gas station is $12,000 a year. The cost of tuition at the college is $5,000, the cost of textbooks is $200, and the cost of meals is $2,400 a year. What is Kyle’s opportunity cost of attending a college? a) $17,200 b) $19,600 c) $5,200 d) $7,600 e) $12,000 Solution: a) $17,200 Opportunity cost = 12,000 + 5,000 + 200 = 17,200. The cost of meals is not an opportunity cost of attending a college, because Kyle would spend this money in either case. Q2. Jerry and Susan both can produce goods A and B. Jerry must reduce production of good A by 2 units to produce a unit of good B. Susan must reduce production of good A by 3 units to produce a unit of good B. Which of the following statements is true? Solution : d) Jerry has a comparative advantage in the production of good B Jerry: opportunity cost of producing 1 unit of good B = 2 units of good A Susan: opportunity cost of producing 1 unit of good B = 3 units of good A Æ Jerry has a lower opportunity cost of producing good B
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