Econ 3306 Homework

Homework 1

1. a) Total explicit - total operating cost and expenses= $555,000

Total implicit cost - personal savings X 15% return= $15,000

Total economic cost =explicit cost + implicit cost=555,000+15,000=$570,000

b) Accounting profit = total revenue - explicit cost=970,000-555,000=$415,000

Economic profit = total revenue – total economic cost

=970,000 – 555,000 – 15,000 = $400,000

c) It was a good decision for the audio engineer to quit is job because his profits are bigger than is salary at his previous job.

2. a) Principal-agency problem is the type of agency involved.

b) Marriott tend to own its hotels in resort areas because people tend to focus on quality and less on how much a hotel cost. The people who come back to revist resort areas will help Marriott hotels. In downtown areas, people it is hard to find good quality business so this gives Marriott an advantage.

3. a) Leftward Shift because people will demand more wine and the price will decrease.

b) Leftward Shift because prices would fall due to the fact that there are more sellers.

c) Rightward Shift because the glass bottle is used and the cost are added to production cost which causes an increase in the price.

d) Leftward Shift because production falls while supply increase which causes the price of wine to fall.

4. B)

The graph shows a decrease in RAM supply as a leftward shift in supply from SA to SB . This causes equilibrium in the RAM market to move from A to B and the prices rise from PA to PB.

A)

The graph shows an increase in home heating oil as a rightward shift in demand from DA to DB. This causes equilibrium in the heating oil market to move from A to B and the prices rise from PA to PB.

5. Marginal cost = marginal revenue

40P = 1000-10P

40P +10P = 1000

50P = 1000

P = 20

6. A)0 50 (200X0) + (25x50)= 1250

1 30 (200x1) + (25x30)= 950

2 20 (200x2) + (25x20)= 900

3 14 (200x3) + (25x14) =950

4 8...