Question

1. For spring break, Melanie will either stay home or go to Daytona Beach. At home, Melanie pays $20 for food and earns $100 a day at her job. At Daytona Beach, Melanie will stay with friends and so had no lodging costs. She will pay $40 per day for food. In terms of dollars, Melanie's opportunity cost per day of going to Daytona Beach is how much? (2 points)

Note: Ignore transportation costs in answering this question.

2.  Given the following production possibilities table for war goods (missiles) and civilian goods (automobiles), answer the next four questions.  (4 points)

Types of Production	Production Alternatives
	A	B	C	D	E
Auto (in million)	0	2	4	6	8
Missiles ( in thousands)	30	27	21	12	0

a. Is the PPC a linear line or a curve? Why so?

Note: You may draw the PPC for your own, but no need to submit the graph for this assignment.

b. If the economy is currently at point (or alternative) B, what is the opportunity cost of producing 2 million more autos?

c. Suppose that the economy is operating at a point inside the curve (PPC), not on the curve.  What does it mean?  Why does it happen?

d. If there is an increase in economic resources, what would happen to the production possibilities curve?

3. Indicate what happens in the denim jeans market if the following occurs? (Your answer should be one of the following: increase in demand, decrease in demand, increase in supply, decrease in supply, increase in the quantity demanded, decrease in the quantity demanded, increase in the quantity supplied or decrease in the quantity supplied. For some questions, there may be two possible answers, but listing only one is acceptable).  Make sure to justify your answer (explain why). (4 points)

a. the new technology that cuts the time to manufacture a pair of denim jeans
b. a rise in the price of a pair of denim jeans
c. a fall in the price of the cloth, used in the production of denim jeans
d. a fall in the price of denim skirts

Answer 1

Question 1

If Melaine stays at home, she will spend $20 on food per day and would earn $100 a day at her job.

If she goes to Daytona beach, she will pay $40 per day for food.

This means that if Melaine decides to go to Daytona beach then in that case not only she has to pay $20 more for food per day but is also going to lose her incomoe of $100 per day.

So,

Opportunity cost = Extra expenditure + Lost income = $20 + $100 = $120

Thus,

Melaine's opportunity cost per day of going to Daytona beach is $120.