Consideration of Opportunity Costs

1-1. Explain why the consideration of opportunity costs may be very relevant to a firm. How can opportunity costs affect a business decision? Use an example to support your answer.

1-2. Think about a good or service for which you believe there has been a shift in demand or supply. Explain the reasons behind the shift and how that has influenced the equilibrium price.

2-1. In a perfectly competitive market where there is virtually no product differentiation, what do you think are the priorities or focus of a firm? How could a firm increase profits?

2-2. Explain a situation you have observed (or read about) in which a firm made a decision considering irrelevant costs or did not consider relevant costs. What was the outcome of the decision, and what could have been done differently?

3-1. What market structure best describes the environment within which your organization operates? What challenges and opportunities would arise from higher and lower degrees of government intervention?

3-2. According to Coase’s theory of the firm, why do firms exist? How do firms contribute to the efficiency of the market economy in ways that networks of independent contractors do not? How are the boundaries of the firm best established?

4-1. Identify a personal economic decision that was driven by a behavioral bias rather than by pure rational behavior. Given your understanding of behavioral economics, how would your decision differ today?

4-2. In which cases would an organization benefit from using direct and indirect price discrimination? Does market structure influence the capacity of the firm to use price discrimination?

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