MGEC: Lecture 1

Practice Problems Answer Key

2. In a recent article in the New York times, Mark Bittman compares the cost of a McDonalds meal for
four ( $28 ) to the cost of a home cooked chicken dinner ($13.78). An economist would likely claim that
the true cost of the home cooked meal is _______ than $13.78, as we need to add to the cost of
groceries also the opportunity cost of _______.

a. Higher. Preparation and cooking time.

b. Lower, preparation and cooking time.

c. Higher. Benefits of health home cooking.

d. An economist would have no idea how you cook a chicken anyway.

Practice Problem 1

A team consisting of three people is working on a big project, which involves manual entry of data in a
computer, with subsequent processing of these data and making a poster presentation. Naturally, each
member of the team has different abilities in performing either task. Amrit can make 1 poster or 400
data entries in a day. Hard-working Binita can make 2 posters or 1200 data entries in a day. Artistic
Chhavi can make 3 posters or 900 entries in a day.
a) As the time comes to start making posters, you decide to assign one member of the team to
this task. Whom would you choose? Explain why.
Opportunity cost of producing 1 extra
Posters Data Entries
poster in terms of data entries given up
Amrit 1 400 400
Binita 2 1200 600
Chhavi 3 900 300
Chhavi should be chosen to make posters as her opportunity cost is the lowest.
b) What is the opportunity cost of a poster at the choice made by you?
If Chhavi makes the poster, the opportunity cost for each poster she makes is 300 data entries that she
wouldn’t be able do.