A.

1. If you were being interviewed for a job, how would you convince your interviewer that studying
business economics was useful for a career in business?

Studying business economics can help us choose the best decision for a certain scenario. This
can be done by applying various economic theories while taking into consideration the factors
that may affect our operations and the consumer’s decisions. Moreover, having an upper hand
in understanding how the economy works can ensure the growth of the business as it saves us
from decisions that may result to losses and foresee possible growth opportunities.

2. How does economic scarcity differ from shortages? Are there any goods which are not scarce?

Economic scarcity means that the available resources can not supply the infinite demands and
needs of people while the shortage is a temporary condition in the market wherein the supply
cannot satisfy the demand. I think most goods are scarce including food and fresh drinking
water but air could be a free good, which is not scarce.

3. The Millennium Commission contributed hundreds of millions of pounds of public money to the
Millennium Dome project. How would an economist calculate the ‘real cost’ of this enterprise?

An economist would calculate first the opportunity cost of the Millennium Dome project. This
involves calculating whether the money for the project would benefit the people more if it is
invested in food, transportation, business, or in other industries. Aside from that, if the project
did seem to be a viable plan, many other questions could be analyzed before pushing it through
such as “would the income outweigh the liabilities?” or “will the stockholders (in this case, the
public) benefit from this?”.

4. With regard to Figure 1.5, explain the following: (1) Why is the production possibility function a
curved rather than a straight line joining x and y? (2) What can you deduce about a firm
currently operating at point w, i.e. producing Ou units of A and Ot units of B? (3) Under what
circumstances could the firm operate at point r?

a. The production possibility function is a curve since the distance of the curve from O is the
current resources of the firm which stays the same.
b. A firm operating at point w is not fully utilizing its available resources. There is still allowance
to maximize production.
c. The firm could operate at point r if there are more resources and the firm produce more of
product B than product A.

5. Imagine you own a small shop selling groceries, newspapers, cigarettes, etc. A number of your
regular customers have asked you to provide a range of fresh sandwiches which they are likely
to purchase on a daily basis. Draw up a list of the anticipated costs and benefits of providing this
service (hint: think like an economist).
 Revenues from Sale of Sandwiches: P36,000
Explicit Cost (Expenses): (P18,000)
Accounting Profit: P18,000

Implicit Cost
Revenues from sale of other merchandise: P21,600
Purchase cost: (P18,000)
Total Implicit Cost: (P3,600)

Economic Profit: P14,400

Opportunity Cost: P21,600

Benefits from doing their suggestion: The customers will be happy and will more likely support
the business by purchasing from it.

Factors to consider: Although sandwiches will take more time to make, the profit margin is also
higher. Other than that, since the customers that suggested it are regulars, it is very likely that
selling sandwiches will return profit.

6. Given the over-capacity in the world car market referred to in the case study, what do you
predict are likely to be the consequences for mass production car firms?

1. Lower Demand
Since multiple car firms are entering the world market, mass production car firms may
not be able to sell well due to lower demand as the market share becomes divided.
2. Over supply
As a result to the first possibility, there may be too much supply of the products which
may incur expenses in inventory as cars depreciate and take up space.
3. Lowering selling prices
In an effort to be able to sell, suffering car firms may cut costs and offer lower prices to
get rid of stocked products.

B.