Ch006_4e - Answers to Text Questions and Problems Answers...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Answers to Text Questions and Problems Answers to Review Questions 1. The Principle of Increasing Opportunity Cost, also known as the Low-Hanging- Fruit Principle, says that the least costly options should be exploited first, with more costly options taken up only after the least costly ones have been exhausted. At low prices, only those with low opportunity costs of producing the product would find it worthwhile to offer it for sale. As prices rise, others with higher opportunity cost could profitably enter the market. LO: 1 AACSB: Analytical Skills Bloom’s: Analysis 2. It can take months or years to rent or build a new factory. By contrast, additional production workers can be hired in days or weeks. The factory is therefore far more likely to be a fixed factor over the next two months. LO: 4 AACSB: Analytical Skills Bloom’s: Analysis 3. Not enough seeds for the plants needed to feed 6 billion people would fit in a single flower pot, let alone develop into healthy plants with only a minuscule amount of soil available per seed. LO: 4 AACSB: Analytical Skills Bloom’s: Analysis 4. False. There is one exception to the price = marginal cost rule. The firm should not produce anything when the market price is so low that even if price equals marginal cost, the total revenue from producing the good is less than variable cost. In this case, the loss from closing down will equal the firm’s fixed cost, which is a smaller loss than they would incur from producing the good. LO: 3 AACSB: Analytical Skills Bloom’s: Analysis 5. We need to know the reservation price of sellers at every level of output in order to calculate producer surplus. The vertical interpretation of the supply curve tells us marginal cost at every level of output, and marginal cost is the reservation price of sellers. LO: 5 AACSB: Analytical Skills Bloom’s: Analysis
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Answers to Problems 1. Wedding photographer or fossil collector? a.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/28/2012 for the course ECO 211 taught by Professor Arafat during the Summer '08 term at Anne Arundel CC.

Page1 / 6

Ch006_4e - Answers to Text Questions and Problems Answers...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online