Chapter 1 HW
Suppose there is only one electric scooter compnay in Adriana's hometown. Currently, the company charges $0.20 per minute, and there is no fee to unlock a scooter. The scooter company is considering changing its pricing plan so that it would charge $1 to unlock a scooter and $0.10 per minute. If Adriana never takes a ride that lasts less than 10 minutes, then what would happen to the average length of her rides if the scooter company switches to the new pricing plan?
She is likely to take longer rides. Explanation If Adriana is rational, she continues each scooter ride as long as the marginal benefit of riding a little longer is greater than the margainal cost. Her usage pattern under the current plan tells us that Adriana values the tenth minute of each ride at no less than its marginal cost, 20 cents. For a 10-minute ride, both plans charge exactly the same amount, $2. But at that point, under the new plan, the marginal cost is only 10 cents per minute. And since her benefit of riding an additional minute is the same under both plans, she's likely to take longer rides under the new plan.
Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $5.00. The smallest amount for which you would be willing to wash someone else's car is $4.00. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it? Instructions:Enter your response rounded to two decimal places. The economic surplus would be $
$1.00 Explanation The economic surplus from washing your dirty car is the benefit you receive from doing so ($5.00) minus your cost of doing the job ($4.00), or $1.00.
Kenya is a mushroom farmer. She invests all her spare cash in additional mushrooms, which grow on otherwise useless land behind her barn. The mushrooms increase by 50 percent in weight during their first year, after which time they are harvested and sold at a constant price per pound. Kenya's friend Fatima asks Kenya for a loan of $200, which she promises to repay after 1 year. How much interest will Fatima have to pay Kenya in order for Kenya to recover her opportunity cost of making the loan? Interest to be paid to Kenya: $_____.
$100 Explanation If Kenya kept the $200 and invested it in additional mushrooms, at the end of a year's time she would have $300 worth of mushrooms to sell. Therefore, Fatima must give Kenya $100 in interest in order for Kenya not to lose money on the loan.
To earn extra money in the summer, you grow tomatoes and sell them at a local farmers' market for $0.15 per pound. By adding compost to your garden, you can increase your yield as shown in the accompanying table. Instructions: Determine the number of additional pounds of tomatoes you are able to grow by using each additional pound of compost. Then compute the additional revenue (or marginal benefit) from each additional pound of compost. Enter your responses in the table below, rounding the marginal benefit of each pound of compost to the nearest penny (two decimal places). Pounds of compost: 0,1,2,3,4,5,6 Pounds of tomatoes: 100,120,125,128,130,131,131.5 Additional pounds of tomatoes:-,20,5,3,2,1,0.5 Additional revenue (or marginal benefit):-,3,0.75,0.45,0.30,0.15,0.08 If compost costs $0.50 per pound and your goal is to make as much profit as possible, how many pounds of compost should you add? Instructions: Enter your answer as a whole number. You should add ________ pounds of compost.
2 lbs of compost Explanation The marginal benefit of adding a pound of compost is the additional revenue you earn from the additional pounds of tomatoes grown. See the table below. You should continue to add more compost as long as the marginal benefit exceeds or equals the marginal cost of adding another pound of compost ($0.50). Note that by adding 2 pounds of compost you'll get an extra 5 pounds of tomatoes, or $0.75 in extra revenue, which covers the $0.50 cost of the extra pound of compost. However, adding another pound of compost yields only 3 extra pounds of tomatoes, so the corresponding revenue increase of $0.45 is less than the cost of the compost. Therefore, you should add 2 pounds of compost and no more.
Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a "tag" system. Each can of garbage to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable. What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city? Under the "tag" system, the total quantity of garbage collected in the city will
decrease Explanation In the current system, the cost is $6 per week no matter how many cans you put out, so the cost of disposing of an extra can of garbage (the marginal cost) is $0. Under the tag system, the cost of putting out an extra can is $2, regardless of the number of cans. Since the marginal cost of putting out cans is higher under the tag system while the marginal benefit remains unchanged, we would expect this system to reduce the number of cans collected.
