Question

1. What decisions do you make that you would call rational? What decisions in your life...

1. What decisions do you make that you would call rational? What decisions in your life would you describe as irrational? Why? Be specific and relate your thinking to what we discussed in terms of rationality and behavioral economics.

2. Calculate and graph the following short run costs for your brewery:

Var

Input (Labor)

Fixed

Input (Stills)

Total Product (barrels beer)

FC

VC

TC

MC

AC

AFC

AVC

0

5

0

8000

0

1

5

50

8000

500

2

5

150

8000

1000

3

5

500

8000

1500

4

5

1000

8000

2000

5

5

1400

8000

2500

6

5

1600

8000

3000

7

5

1650

8000

3500

8

5

1675

8000

4000

Homework Answers

Answer #1

1) In behavioral economics, Rational decisions are those for which we have maximum utility and minimum cost spent. Whereas irrational decisions are those when we spend money on less important items or purchase more expensive items just for the sake for branding or article of distinction.

Keeping in mind the above situations and these definitions we should try to make most of Rational decisions and buy or consume items very efficiently as to maximize the utility.

Spending money on high priced branded clothes or any item that you can buy with low amount without compromising with quality is an irrational decision

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