Economics assumes firms generally try to maximize profits. This means that profi

Question

Economics assumes firms generally try to maximize profits. This means that profit-maximizing behavior

is immoral but to be expected

Farmer Brian has 3 acres of land which he farms efficiently. Each acre can support 10 apple trees. However the 3 acres differ in their ability to support orange trees. He can grow 30 orange trees on the best land, 20 orange trees on the ok land, and 10 orange trees on the bad land.

If he initially has all is land growing apples, what would be the opportunity cost of growing an orange tree?

10 apple trees

After tracking thousands of babies over time a study found that babies that drink bottled water have better health outcomes than those that drink tap water. This means:

Bottled water is healthier for adults as well as babies

Explanation / Answer

1.

Correct option: (a) is good

Reason: Firms operate for profit maximization, which acts as an incentive for them to grow and develop.

2.

Correct option: (d) ½ of an apple tree

Reason: Total apple trees grow on 3 acres of land = 10+10+10 = 30 apple trees.

Total orange trees grow on 3 acres of land = 30 + 20 =10 =60 orange trees.

Thus, the opportunity cost of growing an orange tree= 30/60 apple tree = 1/2 of an apple tree.

3.

Correct option: (b) Bottled water is healthier for babies than tap water.

Reason: This means that there is clear relation between baby’s health and source of water. This means bottled water has better health benefits than tap water.

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