Question

1. Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. (a) Should she quit her current job to become an entrepreneur? (b) If she does quit her current job, which opportunity would she pursue? (30%) 2. Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore? (20%) 3. Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Type of Alternatives A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? b. If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 fork lifts, what could you conclude about its use of its available resources? d. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve? Explain your answers with sufficient detail

Answer 1

ANSWER:

1.

a) Yes. Natasha should quit her current job to become an entrepreneur as she anticipates good entrepreneurial business opportunities

b) If she quit her job, she would pursue the soap-making opportunity as she anticipates a net profit of $70.000 per year than the internet opportunity where she anticipates a net profit of only $25.000 per year.

2.

She will work at the bookstore for 4 hours because for each hour she works at the book store, her opportunity cost is the payment she could have earned from other jobs. Her marginal cost is the higher income from Café which pays $12 and the one which pays $10 per hour. The total hour she can work at these two places is 11 hour, and she has 15 hours to allocate. Thus, she will work at the bookstore for 4 hours.

Her marginal cost of working at the bookstore is $9, and her marginal benefit is $12 for the Cafe and $10 for the other job, Thu, she will prioritize these two jobs first. She will not take the job at the daycare center, because the payment is $8.5, less than the bookstore.