Ch05-HW

1) You have $100. You could put this money in a savings account, but instead you decide to loan the money to someone through Kiva.org. Assuming that the borrower repays the loan, what is the opportunity cost of your decision? (This FAQ page might help). Is this an accounting cost, an economic cost, or both?

2) For the short run, draw a diagram that includes average fixed costs, average variable costs, and marginal costs.

3) Assume are operating an automobile factory in the short run. Your lease requires you to pay $90 a day for rent. Labor, a flexible input, costs $10 per hour.

A) Complete the following table:

Cars/Day	Labor Hours	Fixed Cost	Variable Cost	Total Cost	Marginal Cost	Average FC	Average VC	Average TC
0	0
1	20
2	30
3	36
4	45
5	60

B) At what point do diminishing returns begin?

4) Rock band System of a Down rhetorically ask in one of their songs, “Why don’t President’s fight the war? Why do they always send the poor?” Setting aside ethical implications for a moment, can you answer their question from an economic point of view?

5) The following questions pertain to our auction experiment in class.

A) Can you think of a “product” in the US in which both the highest and second highest bidders pay for it, but only the highest bidder receives it?

B) Do you think this market is efficient?

C) Suppose you have bid $200, and someone has just outbid you by $1. Identify the total, marginal, and sunk costs associated with your decision to bid $202. According to classical economic reasoning, what costs and benefits should you be considering in your decision-making process?

D) Name an effective strategy for “winning” the product at minimal cost.