Homework 1 JW

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Florida Institute of Technology *

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MISC

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Economics

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Feb 20, 2024

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docx

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Uploaded by CoachLemur3367

Chapter 2: The One Lesson of Business 2-2 Selling Used Cars I recently sold my used car. If no new production occurred for this transaction, how could it have created value? First off, the sell for my used care created value because someone paid me for something I no longer wanted/needed. Say I made $20k off of my used car, I know also have $20k more than before to spend on a new vehicle or invest in a commodity that I see as having MORE value than my used car did. 2-3 Flood Insurance The U.S. government subsidizes flood insurance because those who want to buy it live in the flood plain and cannot get it at reasonable rates. What inefficiency does this create? According to our textbook, subsidies are generally negative and destroy wealth by moving assets from higher- to lower-valued uses” (Froeb et al., 2018) I believe that there is inefficiency created due to the likelihood of higher premiums for those not in the flood plain, potentially high deductible for those whose insurance is subsidized, and it could also force people who would rather not utilize this subsidy- to be required to carry flood insurance for their mortgages and other home insurance to be valid. Chapter 3: Benefits, Costs, and Decisions 3-2 Concert Opportunity Cost 2 You were able to purchase two tickets to an upcoming concert for $100 apiece when the concert was first announced three months ago. Recently, you saw that StubHub was listing similar seats for $225 apiece. What does it cost you to attend the concert? Although the price of the ticket has increased for other consumers, since I have purchased my tickets already at the lower cost ($100pp), my cost has not changed. When I attend the concert,

my tickets will still have costed me $100pp- a price advantage to those fellow concert-goers who may have paid more. 3-5 Starbucks Starbucks is hoping to make use of its excess restaurant capacity in the evenings by experimenting with selling beer and wine. It speculates that the only additional costs are hiring more of the same sort of workers to cover the additional hours and costs of the new line of beverages. What hidden costs might emerge? Having worked for 20+ years in the restaurant and bar industry, I can say from experience that there will definitely be hidden costs that the decision-makers will want to take into consideration in order to avoid the hidden-cost fallacy. According to Froeb et al,“The hidden-cost fallacy occurs when you ignore relevant costs, those costs that do vary with the consequences of your decision.” (2018). Some examples are higher costs for maintenance (establishments who serve alcohol tend to have more risk of costumer-produced damages plus more hours of operation means more use of all equipment, etc), higher employment costs (potential for more turnover, training costs, need for additional management, etc), and liability insurance (special to alcohol related incidents, etc), and training material/programs for safe serving. 3-7 Business Costs A business incurs the following costs per unit: labor $125/unit, materials $45/unit, and rent $250,000/month. If the firm produces 1,000,000 units a month, calculate the following: 1. Total variable costs 2. Total fixed costs 3. Total costs 1.) Total Variable costs. These are cost of materials and labor, as those will vary as the number of produced units changes each month (Froeb et al, 2018): $125+ $45= $170x $1mil= $170mil 2.) Total fixed costs, costs that do not change in differing time periods: $250k for rent 3.) Total costs (cost of labor&materials, aka variable plus rent, aka fixed): $250,000 + $170,000,000= $170,250,000 References:

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