The paper "Managerial Economics" Is a great example of a Macro and Microeconomics Assignment. For any expenditure, there is (or should be) some measurable utility; in other words, there is a result of something of value that will be received in exchange for the cost. If there are two or possible expenditures, the utility or return from each is likely not the same; therefore they can be ranked in terms of ‘ greatest return’ to ‘ least return’ , depending on the needs and intentions of the business or person making the expenditure. For example, a company might have a choice between financing a $1 million investment through issuing a bond, or through issuing new shares of stock.
The return or utility of each of those options would be the amount of money that can be raised, minus the costs involved in issuing the bonds or stocks, minus the return that must be paid to investors in the form of interest or dividends. The opportunity cost is the net result of the option that is not chosen; if the company chooses a stock issue, then the opportunity cost is the net amount that could have been raised through a bond issue, and vice versa. Day-to-day opportunity costs are encountered all the time.
A choice of eating lunch in the canteen instead of a McDonald’ s has an opportunity cost of whatever value can be assigned to McDonald’ s being more enjoyable (even if it isn’ t healthier). The opportunity cost of riding the bus to campus instead of walking is the money that would have been saved by walking. 2. Explain what it means to choose at the margin and illustrate with three choices at the margin that you have made today. Choosing at the margin means making a small change in the use of resources; the phrase implies that it means increasing an expense, but that does not necessarily have to be the case.
The extra benefit that comes from slightly increasing expenditure is a marginal benefit, and that of course also creates a marginal cost (that is, the cost of not making the increase). If the benefit is larger than the cost, then the increase is a positive incentive to pursue the increase; if not, then there is a negative incentive. Some simple examples of choosing at the margin: -- Buying a large coffee instead of a regular-sized one; although the large costs 50 cents more, the marginal benefits of enjoying the drink longer (and staying alert longer) outweigh the extra cost. -- Rounding up a loan payment to the next $10 increment; the marginal cost is the amount of extra money paid immediately (which prevents it from being spent on something else), but the marginal benefit is reducing the principal slightly and thereby reducing the amount of interest that will have to be paid in the long term. -- Purchasing extra petrol for the car; again, this has the marginal costs equal to the amount of extra money spent immediately, but if petrol prices are expected to increase, it reduces the cost over the longer-term. Apple Computer Inc.
decides to make iTunes freely available in unlimited quantities. How does Apple’ s decision change the opportunity cost of a download? With respect to downloading a music player, the opportunity cost is zero, or perhaps even negative if the next best option is a music player that a user must pay for.
With respect to downloading individual music files, it reduces the opportunity cost by the proportion of a music player’ s cost one song or video file would represent, so the more songs are downloaded, the less the opportunity cost is. Does Apple’ s decision change the incentives that people face? Because the opportunity cost is for all practical purposes zero, any benefit that a user feels comes from downloading music is almost completely positive. So Apple’ s decision greatly increases the incentive. Is Apple’ s decision an example of a microeconomic or a macroeconomic issue? It is a microeconomic issue, because it only involves the products and customers of a single company, although a very large one.
If the decision changes the way all digital media companies do business, however, then it could be said to be a macroeconomic issue. Why does the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced? The PPF bows outward because, assuming all resources are used efficiently, there is a point in the middle of the curve that represents the maximum possible production of both products at the same time.
All the other points on the curve represent an imbalance, where more of one is being produced at the expense of what could be produced of the other. It suggests that opportunity cost is not a linear relationship, that is, it will be higher on either side of the most efficient point of production. 5a. The graph illustrates scarcity because the production of food declines more quickly as more ethanol is produced, especially after the point (54, 2). 5b.
Three (not sure about this, but based on the question it seems a given answer). 5c. Why does Brazil face a trade-off on its PPF? The relationship between food and ethanol production is not uniform; food production decreases more rapidly as ethanol production increases. That suggests ethanol is perhaps easier to produce than food. 6a. The opportunity cost would be one ton of food. 6b. The opportunity cost would be 14 barrels of ethanol. 6c. The relationship between those two is that they represent the range at which production of both can be maximized; the actual point at which that occurs should be halfway in between.
On either side of that range, the opportunity cost in terms of one product or the other becomes greater. Does Brazil face an increasing opportunity cost of ethanol? What feature of Brazil’ s PPF illustrates increasing opportunity cost? No, it’ s the other way around; the opportunity cost increases for each additional ton of food if measured in terms of barrels of ethanol. To produce the first ton costs 6 barrels of ethanol (i. e., from 70 to 64 barrels); to produce the second costs 10 more; the third costs 14 more; the fourth costs 18 more, and finally the fifth costs 22 more.
The increasing slope of the graph (that is, X values decrease less as Y values decrease) illustrates this.