Chapter 1 — Solutions to Recommended Problems

1-3 The $150,000 investment problem is most suitable for economic analysis. There is not enough data to figure out how to
proceed, but if the ‘desirable interest rate’ were 9%, then foregoing it for one week would mean a loss of: 1/52(0.09)=
0.0017308= 0.17308% immediately. It would take over a year at 0.15% more to equal the 0.17% foregone now. The
chocolate bar problem is suitable for economic analysis. Compared to the investment problem, it is trivial. Joe’s problem is a
real problem with serious economic consequences. The difficulty may be in figuring out what one gains if he pays for the
fender damage instead of having the insurance company pay for it.
1-9 Since it takes time and effort to go to the bookstore, the minimum number of pads might be related to the smallest saving worth
bothering about. The maximum number of pads might be the quantity needed over a reasonable period of time, like the rest of
the academic year.
1-14 This is a challenging question. One approach might be:
a. Determine the percentage of the population that is left-handed.
b. Determine the population of the selected hometown.
c. Next, market research might be required. With some specific scissors (quality and price) in mind, ask a random sample of
people in the town if they would purchase the scissors. Study the responses of both left-handed and right-handed people.
d. With only two hours available, this is probably all the information one could collect. From the data, make an estimate.
A different approach might be to assume that the people interested in left handed scissors in the future will be about the same as
the number who bought them in the past.
a. Telephone several sewing and department stores in the area. Ask two questions:
i. How many pairs of scissors have you sold in one year (or six months or …)?
(ii) What is the ratio of sales of left-handed scissors to regular scissor?
b. From the data in (a), estimate the future demand for left-handed scissors.
Two items might be worth noting:
1. Lots of scissors are universal and equally useful for left- and right-handed people.
2. Many left-handed people may never have heard of left-handed scissors.
1-18 a. Maximize the difference between output and input.
b. Minimize input.
c. Maximize the difference between output and input.
d. Minimize input.
1-23 The remaining costs for the year are:
a. & b. Alternatives and costs:
1. Stay in the residence the rest of the year
Food: 8 months at $300/month Total = $2400
2. Stay in the residence the balance of the first semester; apartment for second semester
Housing: 4½ months × $200 apartment – $700 residence = $200
Food: 3½ months × $300 + 4½ × $250 = $2175
Total = $2375
3. Move into an apartment now
Housing: 8 months × $200 apartment – 8 months × $100 residence = $800
Food: 8 months × $250 = $2000
Total = $2800
c. Ironically, Jay had sufficient money to live in an apartment all year. He originally had $2000 + 9 × $300 = $4700. His cost
for an apartment for the year would have been 9($200 + $250) = $4050. Alternative 2 has the lowest cost, and it is
apparently Jay’s preferred option, therefore I recommend that Jay go with Alternative 2.
1-31 a. The suitable criterion is to maximize the difference between output and input, or simply, to maximize net profit. The data
from the graphs may be tabulated as follows:
Output Units/Hour Total Cost Total Revenue Net Profit
50 $300 $800 $500
100 $500 $1000 $500
150 $700 $1350 $650

200 $1400 $1600 $200
250 $2000 $1750 –$250
 $2,000 Loss
$1,800
$1,600
$1,400
$1,200
Revenue
$1,000
$800 Profit
$600
Cost
$400
$200
0
50 100 150 200 250
Output (units/hour)
b. Minimum input is, of course, zero, and maximum output is 250 units/hr (based on the graph). Since one cannot achieve
maximum output with minimum input, the statement makes no sense.
1-32 Itemized expenses: $0.14 × 29000 km + $2,000 = $6060. Based on standard distance rate: $0.20 × $29000 = $5800.
Itemizing produces a larger reimbursement. Breakeven: Let x = distance at which both methods yield the same amount. x =
$2000/($0.20 – $0.14) = 33,333 km.
1-35 Area A Preparation Cost = 2 × 106 × $2.35 = $4,700,000
Area B Difference in Haul
0.60 × 8 km = 4.8 km
0.20 × –3 km = –0.6 km
0.20 × 0 = 0 km
Total = 4.2 km average additional haul
Cost of additonal haul/load = 4.2 km/25 km/hr × $35/hr = $5.88
Since truck capacity is 20 m3:
Additional cost/cubic yard = $5.88/20 m3 = $0.294/m3
For 14 million cubic meters:
Total Cost = 14 × 106 × $0.294 = $4,116,000
Therefore, Area B with its lower total cost is preferred.
1-37
Quantity Sold per week Selling Price Income Cost Profit
300 packages $0.60 $180 $104 $75
600 $0.45 $270 $210 $60
1200 $0.40 $480 $336 $144
1700 $0.33 $561 $425* $136
$400** $161

2500 $0.26 $598 $460 $138
* buy 1700 packages at $0.25 each
** buy 2000 packages at $0.20 each
Conclusion: Buy 2000 packages at $0.20 each. Sell at $0.33 each.
1-38
Time period Daily sales Cost of groceries Hourly Cost Hourly Profit
0600-0700 $20 $14 $10 –$4
0700-0800 $40 $28 $10 +$2
0800-0900 $60 $42 $10 +$8
0900-1200 $200 $140 $30 +$30
1200-1500 $180 $126 $30 +$24
1500-1800 $300 $210 $30 +$60
1800-2100 $400 $280 $30 +$90
2100-2200 $100 $70 $10 +$20
 2200-2300 $30 $21 $10 –$1
2300-2400 $60 $42 $10 +$8
2400-0100 $20 $14 $10 –$4
The first profitable operation is in 0700-0800 time period. In the evening the 2200-2300 time period is unprofitable, but next
hour’s profit more than makes up for it. Conclusion: Open at 0700, close at 2400.
1-40 Profit = Income – Cost = PQ – C; where PQ = 35Q – 0.02Q2; C = 4Q + 8000. d(Profit)/dQ = 31 – 0.04Q = 0. Solve for Q =
31/0.04 = 775 units/year. d2 (Profit)/dQ2 = –0.04. The negative sign indicates that profit is maximum at Q equals 775
units/year. Answer: Q = 775 units/year.
1-41 Basis: 1,000 pieces. Individual Assembly: $22.00 × 2.6 hours × 1000 = $57,200, shich is $57.20/unit. Team Assembly: 4 ×
$13.00 × 1.0 hr × 1000= $52,000, which is $52.00/unit. Therefore, Team Assembly is less expensive.
1-42 Let t = time from the present (in weeks). Volume of apples at any time = (1000 + 120t – 20t). Price at any time = $3.00 –
$0.15t. Total Cash Return (TCR) = (1000 + 120t – 20t)($3.00 – $0.15t) = $3000 + $150t – $15t2.
This is a minima-maxima problem. Set the first derivative equal to zero and solve for t.
dTCR/dt = $150 – $30t = 0; t = $150/$30 = 5. d2TCR/dt2 = –10. (The negative sign indicates the function is a maximum for
the critical value.)
At t = 5 weeks: Total Cash Return (TCR) = $3000 + $150(5) – $15(25) = $3,375.