I have powerpoints from the course that can assist with answering the questions. Please, answer all questions with full detail and with an economic theory. Document Preview: Chapter 1,2,3; Exercises:...

Chapter 1,2,3; Exercises:Answer the questions listed below based on Economics. Use the PowerPoint
handed out in class to assist you with the exercises as well.
1.) When would being first be a valuable strategy?
Solution:
In case of oligopolistic form of structure being first is a valuable strategy as in such a situation the player
decides among the best possible alternatives and the rival firm takes the decision based on the decision
taken by the first firm. This strategy is more successful in case of dominant strategy.
2.) What does it mean to say that economics focuses on the margin? What is the difference between
average and marginal?
Solution:
In economics the marginal cost and revenue has a greater significance than the total cost and total
revenue. This is because marginal cost and revenue is more significant in decision making as compared
to the total cost and revenue. Fixed cost incurred by the firm does not have any significance in decision
making as these has to be incurred even if there is no production.
Average is the total divided by the quantity where as marginal is the additional cost or revenue per unit
of additional production.
3.) In the following table, total cost is listed. Calculate marginal cost. Use Details.
Total Cost 10 20 40 80 130 200
Quantity 1 2 3 4 5 6
Solution:
Marginal cost is the additional cost incurred per unit of additional output. This is computed as under –
Quantity
Total
Cost
Marginal
Cost
1 10 10
2 20 10
3 40 20
4 80 40
5 130 50
6 200 70
4.) In the following table, total revenue is listed. Calculate marginal revenue. Use Details.
Total
Revenue
200 350 450 520 580 630
Quantity 5 10 15 20 25 30
Solution:
Marginal Revenue is the additional revenue earned by the firm per unit of additional output.
Quantity
Total
Revenue
Marginal
Revenue
5 200 40
10 350 30
15 450 20
20 520 14
25 580 12
30 630 10
5.) An entrepreneur quits a job where she was earning $60,000 per year and starts her own business.
In this business she is earning $20,000. What is the cost of the business? Suppose the
entrepreneur is so happy being on her own that she thinks it gives her the same joy that a
$100,000 job would. What is the cost of the business?
Solution:
Earnings from job = $60,000
Earnings from Business = $20,000
Thus, cost of business = $60,000 - $20,000 = $40,000
If, she thinks it gives her the joy of $100,000 job, then cost of the business would be negative i.e. there is
a benefit from business = $60,000 - $100,000 = ($40,000)
6.) What are the gains from trade? What is the primary benefit of trade? Why is the idea of trade is
beneficial counterintuitive? Answer according to Economics.
Solution:
Gains from trade are the benefits which are derived by the economy when it enters into trade with
other countries. Some of these are –
...