HW5 (Chapter 10 + Chapter 11)
Part I. Multiple Choice Questions – Choose the best answer. (40%)
1. B.
2. D.
3. C. But if the price of Roomba 570 is $1000, then answer D is correct.
4. A.
5. C.
6. C.
7. A.
8. D.
Part II. Short Answer Questions (60%)
1. Textbook page 249, Q13.
Answer:
Toni has costs of $1,500 for the lease of a Web server; $1,750 for high-speed Internet
service; $55,000 for normal profit; $20,000 of forgone earnings from teaching; $4,000 of
forgone rent from renting her basement; $100 of forgone interest from her saving
account; and $1,500 for the depreciation of her computer (which equals the $2,000 paid
for it minus the $500 for which she could have sold it). These various costs sum to a total
opportunity cost of $83,850. Toni’s economic “profit” is her total revenue, $45,000,
minus her total opportunity cost, $83,850, for an economic loss of $38,850.
2. Textbook page 249, Q14.
Answer:
a) All methods other than “pocket calculator with paper and pencil” are technologically
efficient. To use a pocket calculator with paper and pencil to complete the tax return is
not a technologically efficient method because it takes the same number of hours as it
would with a pocket calculator but it uses more capital.
b)
i.
The economically efficient method is the technologically efficient method that allows
the task to be done at least cost. When the wage rate is $5 an hour, total cost with a PC is
$1,005, total cost with a pocket calculator is $70, and total cost with paper and pencil is
$81. Total cost is least with a pocket calculator.
ii.
When the wage rate is $50 an hour, total cost with a PC is $1,050, total cost with a
pocket calculator is $610, and the total cost with paper and pencil is $801. The pocket
calculator is economically efficient.
iii.
When the wage rate is $500 an hour, total cost with a PC is $1,500, total cost with a
pocket calculator is $6,010, and total cost with pencil and paper is $8,001. The PC is
economically efficient.