You are considering buying an apartment as an investment. Suppose that you can rent out the apartment for $500 a month, or $6000 a year. The interest rate is 5 percent per year,and the appreciation rate is 1 percent per year. How much would you be willing to pay to buy the apartment?
Below is a table showing the relationship between units of labor input and units of output for a coffee plantation.
| Hours of Labor per Year (in thousands) | Pounds of Coffee (in thousands) |
|---|---|
| 0 | 0 |
| 1 | 6 |
| 2 | 13 |
| 3 | 21 |
| 4 | 29 |
| 5 | 36 |
| 6 | 42 |
| 7 | 48 |
| 8 | 51 |
| 9 | 53 |
| 10 | 53 |
| 11 | 52 |
Up until what level of labor input are there increasing returns to scale? Over what region are there constant returns to scale? At what point are there diminishing returns to scale? At what point are there negative returns to scale?
Suppose that coffee sells for one dollar a pound. If the wage rate if $5 an hour, what is the profit-maximizing number of hours? What is the profit-maximizing number of hours if the wage rate is $2.80 an hour?
For each anecdote below, state the economic concept that is illustrated. Explain briefly.
In two-parent families where one parent stays home to care for the children, that is usually the parent who would make the least money working outside the home, even though the other parent might be better at caring for the children.
When the price of air travel goes up, companies do more teleconferencing.
Going to the Redskins game meant that Andy had to skip the party at his friend's house.