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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