econ 302 ass 1

econ 302 ass 1 - Christine Drews Toossi Section 2 Econ 302...

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Christine Drews Toossi Section 2 Econ 302 Chapter 1, due Jan. 29 Questions for Review 2. The tuition payment should not be taken into consideration when making the decision, as it is a sunk cost. The payment cannot be immediately recovered when the decision is made, and therefore should be disregarded. 3. The first example of an activity that is accompanied by external costs is a chemical factory deciding whether to dispose of its harmful waste in a costly, yet safe manner, or to dump it in the river. Another example is a drunken person making the decision to either drive home while intoxicated, or to pay for a taxi ride. The final situation that is accompanied by external costs is the decision to drive a car, which releases harmful emissions, or to choose to ride a bike. Problems 2. The interest he should be paid depends on however much money would have been put forth for the harvesting of the mushrooms. The amount of revenue he could have received from the sale of the mushrooms is what Dick needs to pay in interest. 4. Since insurance, interest, and license and registration are sunk costs, we need not take them into consideration. This leaves us with fuel and oil, tires, and maintenance to factor into our decision. In doing so, we get $2500 being the cost for the 10,000 mile driving year, or $0.25 per mile driven. This leaves us with the total 1000 mile trip by car costing us $250. This is less than the cost of the bus trip, and since we are otherwise indifferent between the two methods of transportation, it is a better choice for us to choose to go by
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econ 302 ass 1 - Christine Drews Toossi Section 2 Econ 302...

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