Tute02 - answer

Tute02 - answer - ECF1100 MICROECONOMICS Answers to...

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ECF1100: MICROECONOMICS Answers to tutorial 2 Chapter 1, Problem 2 The benefit of adding an extra bag of compost is the extra revenue you will get from the extra tomatoes that result. The cost of adding a bag of compost is $5. Adding the fourth bag of compost will result in two extra kilos of tomatoes, or $6 in extra revenue, which more than covers the $5 cost of the extra bag of compost. However, adding the fifth bag of compost gives only one extra kilo of tomatoes, so the corresponding revenue increase ($3) is less than the cost of the compost. The cost-benefit principle suggests that you should add four bags of compost and no more. Chapter 1, Problem 3 A 2 percent saving on a $100,000 bill is $2000. A 15 percent saving on a $10,000 bill is $1500. For the same investment, the café’s owner should prefer the 2 per cent saving on $100,000 rather than the 15 percent saving on $10,000. The rules of sound economic thinking suggest that it is the absolute change in the value of costs and benefits that matter, not the proportional change. Chapter 1, Problem 6 In the first case, the cost is $6 per week no matter how many bins are put out, so the cost of disposing of an extra bin of rubbish is $0. Under the tag system, the cost of putting out an extra bin is $2, regardless of the number of the bins. Since the relevant costs, or the extra costs, are higher under the tag system, we would expect this system
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This note was uploaded on 08/30/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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Tute02 - answer - ECF1100 MICROECONOMICS Answers to...

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