Question one:
According to the cost benefit principle, an action should be taken only if the extra benefits from taking the action are at least as great as the extra costs. The economic surplus derived is $2.5. This is arrived at by subtracting the cost of doing the car wash personally that is, $3.5 from the benefit of having a washed car which is $6.
Question two:
At Smiths house, each child knows that the cost of failing to drink a can of cola now will result in the cola ending up being drunk by the other sibling. Each child, therefore, has a motivation to drink rapidly before the other encroaches on his share of cola. Jones, on the other hand, gets rid of this motivation. He does this by preventing each child from taking more than three cans. This ensures that each child enjoys his cola at a comfortable pace and thus the cola at his house lasts much longer.
Question three:
Martha and Sarah make the same move as they share the same preference, income and sunk cost. An identical preference goes in line with an equal measure of benefit from watching the movies. This means that they both enjoy the movie at the same level and get the same benefit from watching it. They also share the same financial constraint. According to Dr. Wrong, sunk costs are those costs which have already been incurred and cannot be recovered. Martha’s and Sarah`s sunk costs of $10 paid for a lost ticket and $ 10 for a lost bill respectively do not affect their decision of buying movie tickets. Thus, they should both watch the movie regardless of their losses.
Question four:
Tennis courts and squash courts are substitutes. In squash, one plays alone while in tennis; he is joined by an opponent. Squash takes place in a squash court while tennis in a tennis court. Squash racquets and balls are complements. Players need racquets to hit the balls. They complement each other. Ice cream and chocolate are neither substitutes nor complements. Their distinction is ambiguous. Both delicacies can be taken at the same time or at different times without necessarily depending on each other or replacing each other. Cloth and paper diaper are substitutes. One may wrap the baby in a cloth diaper or paper diaper according to his taste.
Works Cited
August, Ray, Don Mayer and Michael Bixby. International Business Law: Text, Cases, and Readings. New York: Pearson Education, Limited, 2012.
Dlabay, Les and James Burrow. Business Finance. New York: Cengage Learning, 2010.
Vonderembse, M A and G P White. Operations Management. San Diego: Bridgepoint Education, Inc., 2013.
Zhao, Fang. Maximize Business Profits Through E-partnerships. New York: Idea Group Inc., 2009.
