Microeconomics Chapter 8 B—Costs and the Supply of Goods
ESSAY
224. Kim used to work at “The Big One” accounting firm, and she earned $50,000 a year. She saved her
money and has now invested $100,000 in her own firm. Profit is $20,000 a year, which Kim receives
as her only compensation. She concludes that this is great because a 20 percent return is much better
than the 8 percent she could get in another investment (the opportunity cost of the funds). What is
wrong with this line of thinking?
225. Suppose you are planning to open a lemonade stand. List separately all the explicit and implicit costs
that might be involved.
226. The boss observes that her 10 workers produce 1,000 widgets a day. She concludes that she can
employ 20 workers and make 2,000 widgets, 30 to make 3,000, or 40 to make 4,000. Explain why this
observation is either correct or incorrect.
227. James opened a baseball manufacturing operation, and initially the more balls he made, the lower the
per-unit cost. Now, as output expands, his per-unit costs are rising. He concludes that diseconomies of
scale have set in. Is he correct? Why?
228. Andy wants to maximize his grade-point average. Having spent six hours studying for his final exam
in economics, Andy calculates his grade and discovers that even with a perfect score on the final, he
will not pass the course. He decides to study two more hours so he will not have wasted the first six
hours. Is this a good decision? Why or why not?
229. The AB Manufacturing Company has hired an economist to evaluate its financial situation. She
explains to the board of directors that the company is making zero economic profit. Should the
company go out of business?
230. Mr. Jones pays his employees by the hour. He believes they purposely work slowly to maximize their
personal satisfaction. What can he do to provide them with a stronger incentive to work efficiently?
231. If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of
XYZ, what does this tell us about the view ABC holds of XYZ?
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