Question

1) A local bakery gives information on consumer purchasing habits for muffins and cupcakes. It says that when the price of a muffin is $1, people buy 55 cupcakes. When the price of a muffin is raised to $2, cupcake purchases go up to 65 cupcakes. The cross-price elasticity of demand is

0.67.

4.00.

0.50.

2.00.

0.25.

2) Laura leaves her job as an accountant, where she earns $80,000 per year, to start her own business. After the first year, her business earns a profit of $60,000. How would an economist describe the profitability of Laura’s career change?

Laura had a loss of $80,000.

Laura had a profit of $20,000.

Laura had a profit of $60,000.

Laura had a profit of $140,000.

Laura had a loss of $20,000.

3)William can create 30 meals in one hour, or wash 90 dishes in the same time. Jeremy can create 25 meals in one hour, or wash 50 dishes in one hour. Using opportunity cost, who should specialize in what task?

A)Since creating meals is harder, William should create meals and wash dishes.

B) Jeremy gives up fewer dish washings per meal creation, so Jeremy should create meals.

C)Since washing dishes is easier, Jeremy should wash dishes and create meals

D)Jeremy can wash twice as many dishes per meal, so Jeremy should wash dishes. E)William is more productive and therefore should make meals and wash dishes.

Answer 1

2. Laura has made a loss of $20,000 including opportunity cost.

60,000 - 80000 = $20,000

OPTION E

3. The opportunity cost of William making meals = 90 / 30 = 3 dishes

The opportunity cost of William doing dishes = 30 / 90 = 0.33 Meals

The opportunity cost of Jeremy making meals = 50/25 = 2 dishes

The opportunity cost of Jeremy doing dishes 25 / 50 = 0.5 Meals

William should specialize doing dishes and Jeremy should specialize in doing meals

OPTION B