BUS 100 - Project 1 - CourseHero

1 Project 1: Questions on Lesson 1-5 Question 1. Referring to the table below, from a financial standpoint, Mark would want to go with Option 1, replacing the engine and selling it afterwards, while incurring a loss of $45,000. We can conclude this by looking at the marginal benefits of choosing to replace the engine ($350K) and subtracting it from the sale price without replacing the engine ($220K), resulting in a $130K (350 – 220 = 130) marginal benefit. The next step would be to consider the marginal cost of taking the additional step of fixing the engine. If he chooses to fix the engine, then he would incur a cost -$100K; however, subtracting the marginal cost from the marginal benefit, we can see that it would still be worthwhile for Mark to replace the engine on the plane in order to receive a marginal net gain of $30K (130 – 100). Action Option 1 – Replaces engine Option 2 – Does not replace engine Buys old plane -295,000 -295,000 Fixes Engine -100,000 N/A Sells Plane +350,000 +220,000 Net Total -45,000 -75,000

2 Question 2. “Victorians rush to buy EVs in last days before state government dumps rebate scheme” – The Guardian The article that I chose relates to “Principle #4: People Respond to Incentives”. The story focuses on the Victorian government in Australia rescinding its $3000 electric vehicle rebate one year earlier than expected. The anticipation of the removal led to 1,300 Victorians rushing to claim the rebate before the program was pulled indefinitely, with roughly 60 claims a day since the announcement in early June. This government incentive is the prime example of the effects that incentives have on consumers that induces a rational person to act. The article goes on to state how and why the government implemented this rebate, explaining that they served two purposes: reduce carbon emissions in Australia by 2030 and achieve a goal of 50% of car sales being electric by 2050. However, a researcher from RMIT university argued that with this early removal of the electric car rebate, the government could risk dissuading people from purchasing electric vehicles as electric vehicle sales currently makeup less than 10% of all car sales, which is still significantly short of the 50% target by 2050. He also goes on to further suggest that governments should create disincentives to help discourage drivers from buying gasoline-powered vehicles, likely by adding fees and taxes on top of the market price. Overall, I think this article does a great job at showing the importance of government incentives/disincentives to help influence rational consumers to change their spending habits and adopt new trends. The article also explains in detail the purpose of the incentives, the goals it hopes to reach, and the consequences of removing incentives from the market. Link: https://www.theguardian.com/australia-news/2023/jun/29/victorians-rush-to-buy- evs-in-last-days-before-state-government-dumps-rebate-scheme Question 3.

4 Question 5.

5 b) At a price of $1400, suppliers are willing to supply a quantity of 120 apartments; however, on the demand curve, only 80 apartments are rented at that price. Therefore, there is an excess supply of apartments, where there is not enough demand to meet the supply. You can see a visualization of the gap between Point A and Point X. c) The market equilibrium is at a price of $1,200 where 100 apartments get rented out. Question 6.

7 Note: X-axis represents homes and Y-axis represents Apartments 0 5 10 15 20 25 30 35 - 2 4 6 8 10 12 Houses Vs. Apts (A) - 5 10 15 20 25 30 35 40 45 50 - 2 4 6 8 10 12 14 16 Houses Vs Apts (B) B Version A Version - 10 20 30 40 50 60 70 - 2 4 6 8 10 12 Houses Vs Apts (C) C Version A Version - 5 10 15 20 25 30 35 - 2 4 6 8 10 12 Houses Vs Apts (D) D Version A Version Question 8.

8 I) Graph I does not meet property #4. The reason being is that both pencils with white erasers and pencils with pink erases are perfect substitutes, as they serve the same purpose without any difference. Because there isn’t any real difference or preference by the user, the marginal rate of substitution between both items is fixed, thereby, giving it a straight-line shape. II) Graph II also does not follow property #4. The graph in II represents two items that are perfect compliments to each other and are thereby right

10 Output (Hundreds of documents delivered per month) Fixed Cost Variable Cost Total Cost Average Fixed Cost Average Variable Cost Average Total Cost Marginal Cost 0 2800 0 2800 0 0 - 0 1 2800 400 3200 2,800 400 3,200 400 2 2800 900 3,700 1,400 450 1,850 500 3 2800 1450 4250 933 483 1,417 550 4 2800 1950 4750 700 488 1,188 500 5 2800 2550 5350 560 510 1,070 600 6 2800 3200 6000 467 533 1,000 650 7 2800 4100 6900 400 586 986 900 8 2800 5400 8200 350 675 1,025 1300 9 2800 7300 10100 311 811 1,122 1900 10 2800 9800 12600 280 980 1,260 2500