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1-1. Explain why the consideration of opportunity costs may be very relevant to a firm. How can opportunity costs affect a business decision? Use an example to support your answer.
1-2. Think about a good or service for which you believe there has been a shift in demand or supply. Explain the reasons behind the shift and how that has influenced the equilibrium price.
2-1. In a perfectly competitive market where there is virtually no product differentiation, what do you think are the priorities or focus of a firm? How could a firm increase profits?
2-2. Explain a situation you have observed (or read about) in which a firm made a decision considering irrelevant costs or did not consider relevant costs. What was the outcome of the decision, and what could have been done differently?
3-1. What market structure best describes the environment within which your organization operates? What challenges and opportunities would arise from higher and lower degrees of government intervention?
3-2. According to Coase's theory of the firm, why do firms exist? How do firms contribute to the efficiency of the market economy in ways that networks of independent contractors do not? How are the boundaries of the firm best established?
4-1. Identify a personal economic decision that was driven by a behavioral bias rather than by pure rational behavior. Given your understanding of behavioral economics, how would your decision differ today?
4-2. In which cases would an organization benefit from using direct and indirect price discrimination? Does market structure influence the capacity of the firm to use price discrimination?Unformatted Attachment Preview
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Q 1-1Why the Consideration of Opportunity Costs May Be Very Relevant To a Firm
When it comes to decision making in any business enterprise, the concept of opportunity
cost becomes a key consideration. Any form of scarcity in firms brings about the idea of
opportunity cost, whereby e specific cost of action or move is incurred when the choices are
made. According to the “principles of microeconomics,” Gregory Mankiw explicitly illustrates
the relevance of trade-offs in any decision that a firm has to make. However, the opportunity is
viewed in terms of money, it can as well be considered in term s of any infinite resources
(mrshaleinseoul 2013), thus, considering opportunity cost in a firm is considered when
computing operating expenses to provide an estimated value of a job.
How can opportunity costs affect a business decision?
Notably, opportunity cost does not only imply to money but also may be considered
inform of person-hours, time as well as mechanical output. This translates to an element not only
in consumer decision but also, lifestyle choices, capital allocation, time and production business.
Therefore, considering these factors, opportunity cost dramatically affects the business decision.
Example
For instance, if a firm operates in own building, it means no need to pay rent. On the
contrary, it does not say there is no cost for the office space. Instead, there is an opportunity cost
since the office could have been rented out. However, the foregone money from this alternative
is the opportunity cost.
Q1.2 Good or Service for Which I Believe There Has Been a Shift in Demand or
Supply
Substitute goods or services results in both a shift in demand and supply. For example,
coffee and cocoa are substitutes of each other; quantity and price are both factors that affect
supply and demand; therefore, a change in price or amount of either commodity will result to a
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shift (Carden, 2011). In this case, when the cost of coffee increases, the demand will decrease
shifting the curve inwards, whiles the increasing the demand for cocoa thus moving the curve
outwards. Similarly, when the price of cocoa increases the demand will go downshifting the
curve inwards, while increasing the demand for coffee. The same scenario is observed in the case
of supply when the price of coffee increases the supply increases causing a shift outwards while
the amount of cocoa decreases.
Reasons behind the Shift and How That Has Influenced the Equilibrium Price
According to “3.3 Demand, Supply, and Equilibrium Principles of Macroeconomics,”
(2016), a decrease or increase in price and the quantity of the substitutes is the critical cause of
the shift in both demand and supply. Therefore, an increase in the amount of coffee will increase
its equilibrium price while lowering that of cocoa and vice versa. An increase in coffee will
reduce its price equilibrium and double that of cocoa...