Solution Manual for ISE Microeconomics and Behavior, 10th Edition

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1Chapter 1Thinking Like an EconomistAnswers to Review Questions1.The opportunity cost of reading a novel this evening is not being able to do whatever youwould have done instead. If you would have watched TV, then your opportunity cost is notwatching TV; if you would have studied economics, then your opportunity cost is notstudying economics.2.The tuition is a sunk cost and so your roommate should consider only costs and benefitsrelevant now and in the future. If he will be better off in life by leaving school now, heshould not let the tuition make the rest of life less meaningful.3.Driving an automobile (which pollutes the atmosphere) imposes an external cost on others.Building a house which others admire presents an external benefit. Inventing somethingwhich is new and useful, but which cannot be patented presents another externalbenefit.4.A 50-year-old presumably is in a higher pay bracket than a 20-year-old so the opportunitycost of leaving the job is greater for the older person.5.By definition, a sunk cost is a cost that is incurred regardless of one's current decisions.6.Economists generally argue that people act in their own self-interest even if they do notconsistently evaluate costs and benefits. The analogy mostfrequently used (from MiltonFriedman) is that of a pool player who knows how to sink his shots without having studiedphysics.Answers to Chapter 1 Problems1.Let $X be the amount Jamal earns in a day on his job. The cost to Jamal of going to the parkis then $15 (admission fee) + $5 (gas & parking) + $10 (the lost satisfaction from notworking) + $X (lost salary) = $30 + $X. The benefit of going to the park is$45. He shouldgo to the park if his salary is $10/day, and shouldn't go if his salary is $20/day. At a salary of$15/day, he is indifferent between going and not going.2.If Tom kept the $200 and invested it in additional mushrooms, at the end of a year's time hewould have an additional $400 worth of mushrooms to sell. Dick must therefore give Tom$200 of interest in order for Tom not to lose money on the loan.

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