ECON 6351 Economics for Managers

The homework covers the textbook Ch 1~3, and 17. Homework assignment must be your individual work. Copying answer from the others will violate ACADEMIC HONESTY policy to cause a failing grade. Please show the derivation process (if applicable) and highlight the answer for each question. Limit your answers within 5 pages in a file of either MS Word or MS Excel. No other format will be accepted. No cover sheet is required.


Chapter 1

Q1: (15%)

Assume that it takes a worker three hours of labor time to paint a room and eight hours to sand a floor.

  • If all 24 hours were spent sanding, how many floors could be sanded by one worker?
  • If a decision were made to paint four rooms, how many sanded floors would have to be given up?

(c) Suppose that a second worker (same productivity as the first worker) became available.  Now what would be the opportunity cost of painting four rooms?


Q2: (10%)

Assume that the following table describes the production possibilities frontier (PPF) confronting an economy.  Using that information:


Output Combinations



A 25 0
B 21 1
C 16 2
D 9 3
E 0 4
  • What is the opportunity cost of producing a third unit of hospitals?
  • What is the opportunity cost of producing a fifth unit of homeless shelters?


Chapter 2

Q3: (10%)

Suppose the following data describe output in two different years.


Year 1
Year 2


Movie Rentals


20,000 @ 25¢ each

700 @ $800 each

6,000@ $1.00 each

500 @ $400 each

30,000 @ 30¢ each

650 @ $900 each

8,000 @ $1.50 each

400 @ $450 each


(a) Compute nominal GDP in each year.

(b) Compute real GDP in Year 2 by using the prices of Year 1.

(C) By what percentage did real GDP change from Year 1 to Year 2?




Q4: (5%)

GDP per capita in the United States was approximately $56,207 in 2015.  What will it be in the year 2020 if GDP per capita grows each year by

(a) 3 percent?

(b) -3 percent?


Q5: (5%)

Assume that total output is determined by the formula:


number of workers × productivity = total output

(output per worker)


If an economy’s productivity increases by 5 percent but the number of workers declines by 5 percent a year, how will the output change per year? (Round to hundredth percent)


Chapter 17

Q6: (10%)

Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples.  The production-possibilities schedules in the table below describe their potential output in tons per year.

(a) What is the opportunity cost of pearls on each island (before trade)?

(b) Which island has a comparative advantage in pineapple production? Please explain your answer


Alpha Beta
Pearls Pineapples Pearls Pineapples
0 30 0 20
2 25 10 16
4 20 20 12
6 15 30 8
8 10 40 4
10 5 45 2
12 0 50 0


Q7: (5%)

If a Nintendo Wii costs 20,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is:

(a)       110 yen = $1

(b)       1 yen = $0.00833


Q8: (5%)

In 2010, a Big Mac was priced at $2.49 in New York, 3.36 euros in Rome and 12 yuan in Beijing. If the exchange rates were $1=0.72 euros = 6.63 yuan, in which city that Big Mac was most expensive? Please show the process.





Chapter 3

Q9: (10%)

Illustrate each of the following events with supply or demand shifts in the domestic car market: (Please also conclude the market equilibrium price and quantity changes)

(a) The U.S. economy falls into a recession.

(b) U.S. autoworkers go on strike.

(c) Imported cars become more expensive.

(d) The price of gasoline increases.


Q10: (15%)

Assume the following data describe the gasoline market:


Price per gallon $2.00 2.25 2.50 2.75 3.00 3.25 3.50
Quantity Demanded 32 30 29 28 22 21 20
Quantity Supplied 16 20 24 28 32 36 40






  • What is the equilibrium price?

(b)        If supply at every price is increased by 10 gallons, what will the new equilibrium price be?

(c)        If the government freezes the price of gasoline at (a)’s equilibrium price, how much of a surplus or shortage will exist when supply is increased as described in (b)?


Q11: (10%)

Assume the demand function and the supply functions for 24-can beer case in Houston are:

Demand: QD = 1,000 – 50P

Demand: QS = 40P + 100


  • What are the market equilibrium price and quantity for beer case? (4%)
  • What will happen if the Mayor sets a price ceiling at $12? (3%)
  • What will happen if the Mayor sets a price ceiling at $8? (3%)