1 . Please Define, or explain:

a.Bounded rationality-

b.Explicit cost-

2 . Why in the world would a business tolerate earning zero economic profit?

3 . Should the owner of a Christmas tree farm fertilize her plantation? The immediate cost is $55,000.As a result of the fertilization, the trees are expected to generate additional income of $15,000 each year for the next 4 years.Use an interest rate of 5% in your calculations and please show your work.

Some equations:

PV = M / i

PV = M / (1 + i)^t

4 . With behavioral economics in mind, cite one of the "common mistakes in economic decision-making" and apply it to a simple example from your own experience.

5 . Which has a higher present value,an annual payment of $650, $20,000 payment to be received in 10 yearsor $9000 right now.Assume an interest rate of 5%.

6 . Kofi won the lottery thisthis morning. The lottery only pays out the winning20 yearsafter you win. If the present value (PV) of Kofi's winnings to be paid out in 20 year is calculated to be $20 million dollars ( PV= 20,000,000) today, how much is Kofi going to be paid 20 years from now which will be equivalent to Kofi's the present value dollars computed?

(In other words, calculate the future value (M) in the formula).

Use an interest rate of 5% in your calculations and please show your work.

Some equations:

PV = M / i

PV = M / (1 + i)^t

7 . Which of these was not an example used in the Ariely video?

Marriage proposals

Aspirin versus hip replacement

Organ donation

Dating Tom or Jerry

Rome with or without coffee

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