1.7 The Cost of a Flower Business. Jen left a job paying $40,000 per year to sta
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1.7 The Cost of a Flower Business. Jen left a job paying $40,000 per year to start her own florist shop in a building she owns. The market value of the building is $200,000. She pays $30,000 per year for flowers and other supplies, and has a bank account that pays 8 percent interest. The annual economic cost of Jen’s business is _______.
1.11 Production Possibilities Curve. Consider a nation that produces baseball mitts and soccer balls. The following table shows the possible combinations of the two products.
2.1 A taxi company currently has nine cabs in its fleet, and its total daily cost is $4,000. If the company added a tenth cab, its daily total cost would be $4,200, or $420 per cab. Adding the tenth cab will increase the daily total revenue by $300. Should the company add the tenth cab? _______ (Yes/No)
2.9How Many Hours at the Barber Shop? The opportunity cost of your time spent cutting hair at your barber shop is $20 per hour. Electricity costs $6 per hour, and your weekly rent is $250. You normally stay open nine hours per day.
a. What is the marginal cost of staying open for one more hour?
b. If you expect to give two haircuts in the 10th hour and you charge $15 per haircut, is it sensible to stay open for the extra hour?
3.5Should a Heart Surgeon Do Her Own Plumbing? A heart surgeon is skillful at unplugging arteries and rerouting the flow of blood, and these skills also make her a very skillful plumber. She can clear a clogged drain in six minutes, about 10 times faster than the most skillful plumber in town. (Related to Application 3 on page 38.)
a. Should the surgeon clear her own clogged drains? Explain.
b. Suppose the surgeon earns $20 per minute in heart surgery, and the best plumber in town charges $50 per hour. How much does the surgeon gain by hiring the plumber to clear a clogged drain?
5.3 Suppose that over a one-year period, the nominal wage increases by 2 percent and consumer prices increase by 5 percent. Fill in the blanks: The real wage _______ by _______ percent.
Explanation / Answer
(1.7)
Annual economic cost = Salary foregone + Interest foregone
= $40,000 + $200,000 x 8%
= $(40,000 + 16,000) = $56,000
(1.11)
Neither data nor question is provided.
(2.1) No.
Marginal revenue from last cab added = $300
Marginal cost from last cab = $420
Since MC > MR, the 10th cab should not be added.
(2.9)
(a) Marginal cost = $20 + $6 = $26
(b) Marginal revenue from being open for 10th hour = 2 x $15 = $30
Since marginal revenue > marginal cost of $26, it makes sense to be open.
(3.5)
(a) If the surgeon's opportunity cost of clearing her own drains is higher than that of a surgery, only then she should clean her own drains.
(b) Surgeon's earnings from 1 hour surgery - $20 x 60 = $1,200
Earning from 1 hour plumbing = $50
So, Surgeon gains $(1,200 - 50) = $1,150 by hiring plumber.
(5.3)
Real wage = Nominal wage + inflation rate
Increase in Real wage = Increase in Nominal wage + Increase in inflation rate
= 2% + 5% = 7%
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