1. Frank & Bernanke Ch. 2: Some Common Pitfalls for Decision Makers

2. Average vs. Marginal Costs A shirt company spends $1000 per week on rent for its factory. Each shirt made at the factory requires $2 worth of cloth and $6 worth of labor and energy. – If the factory produces 2000 shirts per week, what is the average and marginal costs of a shirt? – If the factory produces 3000 shirts per week, what is the average and marginal costs of a shirt?

3. Optimal Allocation Fred owns four fishing boats and the catch per boat depends on where the nets are cast. Based on the table below find the optimal allocation.

4. Optimal Allocation Maximize the total number of coconuts and crabs gathered.

5. Time Value of Money You won a prize that will pay $424 a year from now. Your savings at the bank yield 6% interest. What is the lowest price you will accept to sell your prize ticket?

6. Sunk Costs, Variable Costs A group has chartered a bus to Niagara Falls. The driver’s fee is $100 and non- refundable. The bus rental is $500 and can be canceled a week in advance for a charge of $100. The fuel will cost $75. At $25 a ticket, how many people must buy tickets a week in advance to not cancel the trip?