Business Economics
Chapter One
Technical Problem 2
a) Implicit Costs: Opportunity cost = $500,000 x 14% = $70,000
Explicit Costs: What is paid for products/services = $80,000
Total Economic Costs: Implicit Costs + Explicit Costs = $70,000 + $80,000 = $150,000
b) Economic Profit: Total Revenues – Total Economic Cost = $175,000 - $150,000 = $25,000
c) Accounting Profit: Total Revenues – Explicit Costs = $175,000 - $80,000 = $95,000
d) New Implicit Costs = $500,000 x 20% = $100,000
Economic Profit: $175,000 – ($100,000 + $80,000) = $ (5,000)
Chapter Two
Technical Problem 1
Qd = 600 – 4PA – 0.03M – 12PB + 15F + 6Pe + 1.5N
a) The intercept parameter: The amount of the good consumers would demand if the price was zero = 600 units
b) The slope parameter for the price of good A: - 4.
This is the correct algebraic sign because for every $1 increase in price, quantity demanded will decrease by 4 units. Price and quantity demanded are inversely related; therefore, this is the correct algebraic sign.
c) The slope parameter for income: - 0.03.
This would mean that good A is an inferior good because for every $1 increase in income, the consumer demanded 0.03 units less of the good. The equation displays a negative correlation between income and quantity demanded.
d) The slope parameter for the price of good B: - 12.
This slope parameter explains that goods A and B are substitutes because if there is an increase in price of good B, consumers will demand less of it, and perhaps go back to consuming good A.
e) Correct algebraic signs for F, Pe, and N? No.
F is the taste patterns of the consumers. This is not the right algebraic sign because if demand is decreasing, then consumers should have tastes that are moving away from that good (a negative algebraic sign). Pe is the price the consumer is expecting to pay next month. This is not the right sign because if the consumer has a decreasing demand for good A, then the future price should be less than what it is today, and
Technical Problem 2
a) Implicit Costs: Opportunity cost = $500,000 x 14% = $70,000
Explicit Costs: What is paid for products/services = $80,000
Total Economic Costs: Implicit Costs + Explicit Costs = $70,000 + $80,000 = $150,000
b) Economic Profit: Total Revenues – Total Economic Cost = $175,000 - $150,000 = $25,000
c) Accounting Profit: Total Revenues – Explicit Costs = $175,000 - $80,000 = $95,000
d) New Implicit Costs = $500,000 x 20% = $100,000
Economic Profit: $175,000 – ($100,000 + $80,000) = $ (5,000)
Chapter Two
Technical Problem 1
Qd = 600 – 4PA – 0.03M – 12PB + 15F + 6Pe + 1.5N
a) The intercept parameter: The amount of the good consumers would demand if the price was zero = 600 units
b) The slope parameter for the price of good A: - 4.
This is the correct algebraic sign because for every $1 increase in price, quantity demanded will decrease by 4 units. Price and quantity demanded are inversely related; therefore, this is the correct algebraic sign.
c) The slope parameter for income: - 0.03.
This would mean that good A is an inferior good because for every $1 increase in income, the consumer demanded 0.03 units less of the good. The equation displays a negative correlation between income and quantity demanded.
d) The slope parameter for the price of good B: - 12.
This slope parameter explains that goods A and B are substitutes because if there is an increase in price of good B, consumers will demand less of it, and perhaps go back to consuming good A.
e) Correct algebraic signs for F, Pe, and N? No.
F is the taste patterns of the consumers. This is not the right algebraic sign because if demand is decreasing, then consumers should have tastes that are moving away from that good (a negative algebraic sign). Pe is the price the consumer is expecting to pay next month. This is not the right sign because if the consumer has a decreasing demand for good A, then the future price should be less than what it is today, and