Suppose the smell from Paula and Dean’s baking is causing tummies to rumble. The private market for pies is given by: 

Demand: P = 40 – 2Q 

Supply: P = 4 + Q 

The delicious scent in the air is creating an external benefit of $6 per pie. 

1. How many fewer pies are being baked than is socially optimal?   

2. What is the deadweight loss associated with this underproduction?  $

Elliot and his friend Olivia are both volunteers at a cat rescue. The shelter supervisor

asks the two of them to clean out kennels and haul bags of cat food from the

donation area to storage. Elliot knows from his last time volunteering that he can clean out 8 kennels in an hour or move 5 bags of cat food. Olivia can

clean out 10 kennels in an hour or move 6 bags of cat food. Olivia suggests that

they should both do equal amounts of each task. 

Answer the following questions

to determine if Olivia is making the best decision.

a. Who has an absolute advantage in doing each task?

b. What are Olivia’s opportunity costs of doing each

task?

Note: Please round your answer to 2 decimal places if necessary.

Olivia's opportunity cost of cleaning a kennel is  food bags moved and her opportunity cost of moving a bag of cat food is  kennels cleaned.

c. What are Elliot's opportunity costs of doing each task?

Note: Please round your answer to 2 decimal places if necessary.

Elliot's opportunity cost of cleaning a kennel is  food bags moved and his opportunity cost of moving a bag of cat food is  kennels cleaned.

d. Who has a comparative advantage in doing each task?

e. Who should do each task to minimise the amount of

time they both spend?

f. Was Olivia’s suggestion the best possible way to

allocate your time? Why or why not?

The Australian Consumer Law (‘ACL’) has provisions to protect consumers.

Which of the following is NOT one of these ACL provisions? 

People

differ in their willingness to pay for air travel and airlines would like to

charge different prices to different people. Airlines typically attempt to

divide passengers into two types: leisure travellers and business travellers. 

Suppose that an airline is charging $250 per ticket for all passengers on

flights between Sydney and Melbourne. The accompanying table provides information on quantity demanded for air travel for leisure travellers and

business travellers.

Please refer to the case study of the week 4 tutorial. Which of the following does NOT best describe Qantas Group’s approach to stakeholders? 

Choose two answers.  

George owns a cake shop, which he spends his days managing. If he were to shut it down, he could work as pastry chef earning $400 per day. He also pays $200 per day to rent the building. His expenses on staff and ingredients depend on how many cakes his shop makes per day and are given by the following table.

If George’s shop produces 8 cakes, his marginal cost is _____, and his average cost is _____.

A local sandwich shop faces the following costs of production per hour depending on how many sandwiches it makes.

Suppose that the market for sandwiches is perfectly competitive. If the market price of a sandwich is $3.50, the shop will make sandwiches per hour.

Suppose that Ron and Karen have a boutique bakery where they make only cakes and biscuits. Their daily productivity is reported in the table below.

Ron’s opportunity cost of producing a kilogram of cake is kg of biscuits.

George owns a cake shop, which he spends his days managing. If he were to shut it down, he could work as pastry chef earning $400 per day. He also pays $200 per day to rent the building. His expenses on staff and ingredients depend on how many cakes his shop makes per day and are given by the following table.

If George’s shop produces 8 cakes, his marginal cost is _____, and his average cost is _____.

A local sandwich shop faces the following costs of production per hour depending on how many sandwiches it makes.

Suppose that the market for sandwiches is perfectly competitive. If the market price of a sandwich is $3.50, the shop will make sandwiches per hour.