Answers to Chapter 1 - Texas A&M University
Answers to Chapter 1
1. (a) natural and biological resources
(b) human resources
(c) manufactured resources
2. (a) Buy wheat and produce bread, rolls, and pastries, making a profit of $15 million. Of the three alternatives, this alternative maximizes profit.
(b) $12 million – the profit associated with the next best alternative.
3. (a) normative economics
(b) positive economics
(c) macroeconomics
(d) microeconomics
4. Change
5. d. Mixed
6. Agricultural Economics
7. b. fallacy of composition
8. Alternative 1 –Grow Wheat
Yield = 70 bushels/acre
Price of wheat = $3.50/bu.
Production expenses = $140/acre
Profit = total revenue – total costs = ($3.50/bu)(70bu/acre) - $140/acre
Profit = $245/acre - $140/acre = $105/acre wheat
Alternative 2 – Grow Barley
Yield = 50 bushels/acre
Price of Barley = $2.50/bu
Production Expenses = $150/acre
Profit = total revenue – total costs = ($2.50/bu)(50bu/acre) - $150/acre
Profit = $125/acre - $150/acre = -$25/acre barley
8. Continued
Alternative 3—Leasing
Profit=$80/acre-$35/acre=$45/acre
a) undertake growing wheat; gives rise to the highest profit/acre
b) opportunity cost $45/acre; leasing is the next best alternative
c) total economic cost: $185/acre; $140/acre production expenses of growing wheat plus the $45/acre opportunity cost associated with growing wheat
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