Reference no: EM133439463

Question
After her recent success at the Grammy's, Beyoncé and Jay-Z decided to fly straight to Tasmania for a relaxing holiday, where they are free from media attention or stress and able to behave rationally.  
While wandering Salamanca Market (in disguise) one morning they come across someone selling a Tasmanian dessert consisting of raspberries, small pancakes and ice cream for $12.
Beyoncé buys a Tasmanian dessert and eats it, while Jay-Z does not.

? Explain why the benefit Beyoncé receives from eating the Tasmanian dessert is less than, equal to or greater than $12 and why Beyoncé's net benefit of purchasing and consuming the Tasmanian dessert is negative, positive or equal to zero.

? Explain why the benefit Jay-Z would receive from eating a Tasmanian dessert is less than, equal to or greater than $12 and why Jay-Z s net benefit of purchasing and consuming the Tasmanian dessert is negative, positive or equal to zero.

? Jay-Z suggests that Beyoncé buys and eats a second Tasmanian dessert, but Beyoncé declines. What does this suggest about Beyoncé's benefit and net benefit of a second Tasmanian dessert?

? Suppose that seller says "Ahh you are in luck because the second Tasmanian dessert is only $8". Beyoncé agrees to buy a second Tasmanian dessert and eats it.  What does this and the information in c suggest about Beyoncé's benefit and net benefit of a second Tasmanian dessert?  
? In the afternoon they visit the seller at Salamanca again and the Tasmanian desserts are looking just as good as they did in  marks)the morning. Now Jay-Z buys a Tasmanian dessert and eats it. What does this suggest about the benefit of consuming goods across time? Use Jay-Z's behaviour in the morning and afternoon to illustrate your answer.

In this question, you should explain the concepts you are using with reference to the question, but you do not have to formally define the concepts.

Question 2 - (sentences + calculations per section)
You have just established a small private civil construction company. You want to maximise the company's net benefit (or profit). Your company specialises in transforming gravel roads into modern sealed roads.
A large private farm is offering $4m to anyone who can seal all 8 km of their internal farm gravel roads but will not pay anything if the job is not 100% complete. There is no other work available at this time.
You do not have any equipment or workers, but you can hire all the equipment and workers required for $0.4m per km of road sealed. You must pay them after each km of the road they seal. . It takes a month to seal each km of road. There is no known risk to any of these values (at this time).
Assume that the opportunity cost of money, the interest rate is 0%, that is you do not have to worry about discounting or any borrowing costs to buy equipment or pay workers.  

? Explain whether you should take the job by using marginal cost-benefit analysis.

? Your accountant points out that you have already paid $0.9 million to establish your civil construction company. How, if at all should this influence your decision in a?

Suppose after 4 months and completing 4 km, there are completely unexpected legal fees that require you to pay $1.3 million to continue the farm project.

? Should you abandon the farm project at this stage or complete it? Explain your decision by appropriately using marginal cost-benefit analysis. 
? If at this time suppose an alternative government contract becomes available paying $0.60m per km completed and with no additional legal fees. What is the opportunity cost of continuing with the farm project? What is the marginal net benefit of continuing with the farm project relative to the government contract? Should you abandon the farm project at this stage or complete it? Explain your decision by appropriately using marginal cost-benefit analysis.

 

In this question, you should explain the concepts you are using with reference to the question, but you do not have to formally define the concepts.

Question 3 - ( sentences + calculations/table)
Suppose you manage a fishing boat in Wynyard that has a license to fish and sell blue warehou. Each fishing trip costs $900.  Over the last year, you have recorded data and noted the total benefit or revenue from the number of trips per week fishing for blue warehou.

Number of Trips per week Total Revenue $/week 
0 $0
1 $1,000
2 $1,920
3 $2,760
4 $3,520
5 $4,200
6 $4,800

Use marginal analysis to determine how many fishing trips per week should be made in order to maximise net benefit or profit (total revenue less total cost)? Explain your reasoning and show any calculations or tables you made to determine your answer.

Feel free to use MS Excel to make any calculations.

In this question, you should explain the concepts you are using with reference to the question, but you do not have to formally define the concepts.

Question 4 -(sentences + calculations per section)
Suppose that in a year Indonesia can produce either 50 million tonnes of petrol or 20 million tonnes of iron or any linear combination, for example, 25 million tonnes of petrol and 10 million tonnes of iron. Also suppose that in a year Australia can produce either 80 million tonnes of petrol or 64 million tonnes of iron or any linear combination, for example, 20 million tonnes of petrol and 48 million tonnes of iron.

? Explain which country has the absolute advantage in: 
? petrol production?
? iron production?

? Calculate and explain what is the opportunity cost of producing 1 tonne of iron:
? for Australia?
? for Indonesia?
Explain which country has the comparative advantage and should specialise in iron production.

? Calculate and explain what is the opportunity cost of producing 1 tonne of petrol:
? for Australia?
? for Indonesia? 
Explain which country has the comparative advantage and should specialise in petrol production.

Suppose that Indonesia suggests that Australia sells iron to Indonesia for 2.0 tonnes of petrol for every tonne of iron, and equivalently it will sell tonnes of its petrol to Australia for 0.5 tonnes of petrol for every tonne of iron.  

? Will Australia accept this offer? Explain why or why not?

? Suppose Australia wants 30 tonnes of petrol and Indonesia wants 20 tonnes of petrol and as much iron as they can get. Show that Indonesia and Australia can have more iron while still meeting their petrol requirements when they specialise and trade than when they do not.

In this question, you should explain the concepts you are using with reference to the question, but you do not have to formally define the concepts.