Questions and Answers on Managerial Economics

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30th Jan 2018 Economics Reference this


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This assignment is about the different prospective of managerial economics. In which opportunity cost, a person can avail that cost by using the same resources. Choosing margin helps people to get a little better thing then the other available options as it normally ignore the sunk cost. Apple company is one of the leading organization that introduce the app store available in iTunes is vibrant, extremely competent, and evolving digital market place. All the apps are user friendly and seem beautiful within and outside the app store. Later on the PPF curve is discussed that shows maximization of production level and commodity those results for economic based concepts.

Task 1

Explain why opportunity cost is the best for gone alternative and provide examples of some opportunity costs that you have faced today.

Opportunity cost

Opportunity cost is the cost that a person gives up in order to buy a thing he wants to buy. As opportunity cost is the cost that a person can avail by using the same resources. In economy, whenever the word cost is use it means that economist is talking about opportunity cost. The opportunity cost is the cost that a person gives up so it is the second highest value of alternative that the person leaves in order to gain the first better opportunity (Zhang, 2013).


Suppose a person decided to buy a computer but he can buy different other things by using the same resources. He could choose to spend his money for purchasing books, can arrange a tour, whichever option suit a person. If he decided to purchase a computer instead of all above things then the other options are the opportunity cost. As he left the opportunity to buy them in order to buy the computer.

It determines the logic that the person decided to buy one thing by spending his resources instead of buying anything else. Another example is that for most of the college students, the college and tuition fee is not the actual cost. The opportunity cost of the student is the time they spend on college instead of doing any job (Puangsri, 2009).

Task 2

Explain what it means to choose at the margin and illustrate with three choices at the margin that you have made today.

In economics choosing at the margin means that one additional more unit of any resource used. Choosing at margin means, that person is carrying out an incremental change or a kind of adjustment in action plan. Choosing margin helps people to get a little better thing then the other available options as it normally ignore the sunk cost (Okullo, 2013) .

Example of choosing at margin

for example the benefit a person get by eating one additional bar of chocolate, each additional bar of chocolate gives you less level of satisfaction. Another example of choosing at margin is that if a theater is facing the problem of empty seats. Then they should sell tickets at half rates by bargaining with their customers. This will help them to get half price instead of gaining zero. It will increase the overall revenue of the theater as they collect 50% of the amount of ticket instead of getting nothing that increase their overall revenue.

In case of any airlines, if the airplane takes off with some empty seats, they face lose of those empty seats as it reduce the overall revenue. Therefore, the solution to the issue was to reduce the price of the tickets. As reducing, the price of the ticket can increase the sale of ticket. It will help to increase the overall revenue of the airlines (SIVA, DANIEL, & SHALINI*, April, 2013).

Task 3

Apple Computer Inc. decides to make iTunes freely available in unlimited quantities.

a. How does Apple’s decision change the opportunity cost of a download?

The resources are scares now a day but the wants of people are unlimited. The app store available in iTunes is vibrant, extremely competent, and evolving digital market place. Proper strategies made in order to make and mange in order to provide comfort to the employees.

The decision made by apple can decrease the opportunity cost of iTunes if they reduce the monetary cost by 99c that previously settled per iTunes. The iTunes store is now one of the most famous musical stores. ITunes, offers almost 10 million songs, on 30000 episodes of TV serials in different channels, with outclass video quality (GREGERSEN, EL LAKANY, KARSENTY, & WHITE).

b. Does Apple’s decision change the incentives that people face?

Yes, the incentives of providing free latest music available on iTunes have increased the decision of people. As it, encourage people to buy new iPods. The apps made by apple are purely on merit with regard of their quality for the purpose of promotion. All the apps are user friendly and seem beautiful within and outside the app store. The apps are available in almost 150 countries in order to provide customers with better facilities. It help customer to localize their apps according to their requirements.

Many international musical brands like EMI, Warner musical brand, universal musical group, etc decided to offer their music in iTunes. iTunes provide a better quality of audio music, the 3G user of iphone can now get iTunes catalogue of music on iPhone 3 3G by the help of 3G network (FREDERICK, NOVEMSKY, WANG, DHAR, & NOWLIS*, 2009).

c. Is Apple’s decision an example of a microeconomic or a macroeconomic issue?

Macroeconomics is the study of economic in which the national economy discussed and the economy of world discussed. Like the reason of the increase in the unemployment in a particular year. The microeconomics deals with the choice made by individuals or a business that interact in market. As it help to determine the reason of why people buy more mobile phones. From above definitions, it is clear that the decision made by Apple Company is a micro economical issue as it deals with a single market and concern to a single company (WEAVER & FREDERICK*, 2012).

Task 4

Why do the PPF bow outward and what does that imply about the relationship between opportunity cost and the quantity produced?

The production possibility frontier used in economics, which determine the production curves, boundaries and products formative curves. This graph used to determine the comparison of rate of production and commodities used as a fixed production factors. The PPF curve shows maximization of production level and commodity those results for economic based concepts. The PPF is a curve bow outward due to result of change in economic determinants such as scarcity of resources, economic of scale in production, and efficient of production. The PPF shows maximum combination of two different products that has produced on basis of available resources (MIKAMI, 2013).

The PPF used to illustrate the raise in scarcity of resources. There are different points that technically determine efficiency. The opportunity cost related to different activities is highly valuable which alter the engagement of different activities with opportunity cost. Opportunity cost related to increase in margin as well as increase possible frontiers, which bowed towards straight line due to increase in production. Economies of scale will increase production as well as increase additional resources with activities. The importance of PPF is used to decide the resource of opportunity cost therefore, opportunity cost determine through cost of giving up which is required for production. It demonstrate that opportunity cost ensure the individual which at least determine the good with great choices.

Task 5

Economic growth illustrated by shifting a production possibilities frontier outward.

Ethanol (barrels per day)

Food crops (tons per day)













Use the following information to answer questions 5 to 7.

Brazil produces ethanol from sugar, and the land used to grow sugar cane used to grow food crops. Suppose that Brazil’s production possibilities for ethanol and food crops are as in the table.

  1. a. Draw a graph of Brazil is PPF and explains how your graph illustrates scarcity.

There is the comparison of barrel and tons in Barazil, the PPF shows that optimal point on frontier (40, 3).

Productivity possibility frontier

The PPF curve illustrates that production possibility determine an economy with combination of two goods one is food in tons and other is ethanol production. Ethanol production is less than the production of food in an economy of Barazil. A production possibility frontier represents a specific boundary of capabilities of economy’s production therefore; it is possible to term the production possibility frontier. The PPF maximize the production at fixed resources in an economy with fully employed resources. The production means that resources are unemployed and increase opportunity cost with given curve of convex shape mirror.

  1. If Brazil produces 40 barrels of ethanol a day, how much food must it produce to achieve production efficiency?

According to the PPF, 40 barrels of ethanol a day there must have 3 tons per day of food that produce to achieve the efficient frontier. The opportunity cost of producing the goods and services which used to achieve the benefits of producers within a country. The cost of production is based on products and services because economies of scale known as managerial cost. Allocation of efficiency maximizes the managerial benefit with equal or extra units of production.

  1. Why does Brazil face a tradeoff on its PPF?

Brazil faces tradeoff on its PPF because resources of Brazil are limited as well as technology. For the production of Brazil’ goods it is more important to produce the economies of scale with changeable factors of production. The way to develop goods and services helps to increase production capacity and increase goods that required decrease production of goods and also required to increase goods production with tradeoff reflection.

Task 6

a. If Brazil increases its production of ethanol from 40 barrels per day to 54 barrels per day, what is the opportunity cost of the additional ethanol?

According to the production of Brazil there will an efficient increase in production which will entirely produce ethanol from 40 barrels per day to 54 barrels per day, which decrease production of food as per crops from 3 tons per day to 2 tons per day. Therefore, opportunity cost of one ton ethanol for per day is 14 barrels or 1/14 ton of food for per ethanol barrel.

b.If Brazil increases its production of food crops from 2 tons per day to 3 tons per day, what is the opportunity cost of the additional food?

When Brazil efficient to increase its production from 2 tons per day to 3 ton per day then production of barrel will decrease by 14 as well as opportunity cost of additional food will be 14/1. Opportunity cost helps to determine what will forgo in return to get a new one opportunity. As Brazil increase production of food due to decrease in barrel of ethanol. Forgoing cost of ethanol is opportunity cost against getting the extra food tons for county promotion.

  1. What is the relationship between your answers to parts (a) and (b)?

There is negative relationship between production of foods and barrel, as increase in production of foods barrel production will decrease. Increase in production of food will decrease ethanol production with more value than food production.

Task 7

Does Brazil face an increasing opportunity cost of ethanol? What feature of Brazil’s PPF illustrates increasing opportunity cost?

The increase in opportunity cost of ethanol will decrease production of food. Food is necessary item, for increase in production can easy to sacrifice the ethanol production. Economy will grow when necessaries will fulfill and due to unavailability of land increase in production as well. Graph illustrated that from point A it will decline and comparison at 40 barrel of ethanol will decrease one tone food. The increase in production will increase growth of country with suitable level of economies of scale. There are few managerial economic contents, which determine opportunity cost as

  • The marginal cost of food for 2 tons is equal to the cost of 54-barrel ethanol.
  • Increase in production will sometime decrease benefits for whole economy
  • Efficiency cost helps to achieve the amount of goods and managerial benefits from production through available resources.
  • Economic growth will illustrate the PPF and also increase rate of opportunity as well
  • For economic production, there is lot of opportunities, which helps to increase tradeoff as well as increase specialized products.
  • Price adjusted to make decision and determine different factors for market promotion


FREDERICK, S., NOVEMSKY, N., WANG, J., DHAR, R., & NOWLIS*, S. (2009). Opportunity Cost Neglect. JOURNAL OF CONSUMER RESEARCH, Inc. â-, 36, 9. Retrieved from:

GREGERSEN, ,. H., EL LAKANY, H., KARSENTY, A., & WHITE, A. (n.d.). Does the Opportunity Cost Approach. 23. Retrieved from:

MIKAMI, M. (2013). Evolutionary foundations of Coasean economics:. Erasmus Journal for Philosophy and Economics,, 6(1), 164. Retrieved from:

Okullo, S. J. (2013). Economic modeling of the long-term. 199.


SIVA, S., DANIEL, M. J., & SHALINI*, S. (April, 2013). A STUDY ON MARGINAL COSTING IN GODREJ CONSUMER. Asia Pacific Journal of Marketing & Management Review__, 2(4), 2836. Retrieved from:

WEAVER, R., & FREDERICK*, S. (2012). A Reference Price Theory of the Endowment. Journal of Marketing Research, XLIX, 707. Retrieved from:



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