1. Sarah is currently working for an accounting consulting firm, and her annual salary is $60,000. She is considering, however, opening her own business of art gallery. If Sarah runs her own business, then she will have to give up the current job in the firm. With the business, Sarah will provide the space for artists to display their works, and when a piece of art is sold, she will receive a certain amount of fee from the artist. She expects the business will generate $300,000 revenue per year, and the expenses to run the business, which includes the lease, utility, etc., will be $200,000. Compute the expected annual accounting and economic profits from the business.

2. Tom and John are both eight years old, living in two separate households in a neighborhood, and they both like the chocolate cupcake the most among all the snacks in the world. Their second favorite snack is a sugar-glazed donut. On one bright spring day, their moms (or dads) went grocery shopping together, and they both bought snacks for their own children. When Tom came home after school on that day, he found one chocolate cupcake on a dining table, with a note saying, “It is yours, Tom, enjoy!” So did he eat the cup cake. John found one chocolate cake and one sugar-glazed donut on the table, with a note saying, “Choose one, John, the other is for your brother.” So did he eat a chocolate cupcake, too?

Between Tom and John, who is happier in terms of the satisfaction derived from their actions related to the consumption of a chocolate cake on that day? Provide a justification for your answer.

3. A hypothetical study examines a data set of married couples in several different locations, and finds that a rise in the divorce rate, i.e. the percentage of the divorces among the couples, is followed by a rise in bankruptcy among the couples. Based on the finding, the principal analyst of the study concludes that a divorce tends to cause a bankruptcy. Someone else who is not involved in the study, however, argues that the conclusion has a problem of ‘reversed causality.’ Provide a possible reason why study’s conclusion could have a problem of ‘reversed causality.’

4. A Korean BBQ restaurant has three workers for washing jobs: Dane, Jose, and Pola. Each works eight hours a day and can produce two washing services: washing rice bowls and washing grill racks. In an hour, Dane can either wash 100 rice bowls or wash 30 grill racks; Jose can either wash 120 rice bowls or wash 30 grill racks; and Pola can either wash 120 rice bowls or wash 40 grill racks. `

a. Compute the marginal rate of transforming washed rice bowls to washed grilled racks, MRTBR in short, for Dane, Jose, and Pola.

b. The following two extreme points are located on the production possibilities frontier (PPF).

• Point A: this point represents the numbers of washed rice bowls and the number of grill racks when all three workers spend all their time washing rice bowls only.

• Point B: this point represents the number of washed rice bowls and the number of grill racks when all three spend all their time washing grill racks only.

The PPF also includes the points on which some of the workers are spending all their time in doing one job, while some other workers are spending all their time doing the other job. Starting from point A, who should be the first person to be relocated to the other job? Explain the reason why.

c. After the transfer of the first person is completed, what are the restaurant’s total number of washed rice bowls and the number of washed grill racks? The coordinates made up with these numbers should represent another point on the PPF, say Point C.

d. Graph the production possibilities frontier for washed rice bowls and washed grill racks in this restaurant.

Answer rating: 100% (QA)

1 Accounting profit 300000 200000 Accounting profit 100000 Economic profit 30000020000060000 Economi... View the full answer