1. Betty can make either “12 bottles of wine and 0 boxes of chocolates” or “0 bottles of wine and 96 boxes of chocolates” or a combination of wine and chocolates. To answer parts (a) through (c) of this question assume that Betty’s Production Possibility Frontier (PPF) reflects the property of constant opportunity costs.
a. Draw Betty's PPF.
b. Find Betty's opportunity cost of a bottle of wine in terms of box (es) of chocolates.
c. Suppose Betty takes a course called WINE 103. After the semester is over she realizes that she can now make either “48 bottles of wine and 0 boxes of chocolates” or “0 bottles of wine and 96 boxes of chocolates” or a combination of wine and chocolates. Find Betty's new opportunity cost of a box of chocolate in terms of bottle(s) of wine.
2. Find the equilibrium price (P), quantity (Q), and revenue in a market characterized by the following equations:
Qd = 500 - 2P [demand]
Qs = 3P [supply]
3. According to a Wall Street Journal article "MCI, in New Phone War Skirmish, Files Suit over AT&T Ad Claims," MCI was upset with AT&T over allegedly false claims that AT&T's service is cheaper than MCI's. Suppose that the typical consumer is a small business, Woodbrook Electronics. Woodbrook uses MCI as their long-distance carrier and currently places 100 calls per month. MCI charges a price of $0.80 per phone call. Woodbrook used to subscribe to AT&T and placed 90 calls per month at AT&T's old rate of $.90 per phone call, but switched to MCI to take advantage of the lower price. Based on this data, estimate the equation for Woodbrook's demand assuming it is linear.