Hiro owns and operates a small business that provides economic consulting services. During the year he spends $57 000 on travel to clients and other expenses. In addition, he owns a computer that he uses for business. If he didn’t use the computer, he could sell it and earn yearly interest of $100 on the money created through this sale. Hiro’s total revenue for the year is $100 000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $50 000.

Jackie owns and operates a web-design business. To keep up with new technology, she spends $5000 per year upgrading her computer equipment. She runs the business out of a room in her home. If she didn’t use the room as her business office, she could rent it out for $2000 per year. Jackie knows that if she didn’t run her own business, she could return to her previous job at a large software company that would pay her a salary of $60 000 per year. Jackie has no other expenses.

You own and operate a bike store. Each year, you receive revenue of $200 000 from your bike sales, and it costs you $100 000 to obtain the bikes. In addition, you pay $20 000 for electricity, taxes, and other expenses per year. Instead of running the bike store, you could become an accountant and receive a yearly salary of $40 000. A large clothing retail chain wants to expand and offers to rent the store from you for $50 000 per year. How do you explain to your friends that despite making a profit, it is too costly for you to continue running your store?

Suppose you have just paid a nonrefundable fee of $1000 for your meal plan for this academic term. This allows you to eat dinner in the cafeteria every evening.

New Brunswick, Ontario, and Quebec are the only provinces that have nuclear power plants. Recently, the nuclear plant at Darlington, Ontario, which was completed in 1993 at a price of $14.4 billion, was due for repairs to extend its useful life. According to estimates by Ontario’s Ministry of Energy, the repair cost of the plant could run from $6 billion to $10 billion. At the same time, the cost of building a new nuclear plant in Ontario could range from $10 billion to $20 billion, depending on its size. Is repairing the Darlington plant the right economic decision? Explain.

You have bought a $10 ticket in advance for a lacrosse game, a ticket that cannot be resold. You know that going to the lacrosse game will give you a benefit equal to $20. After you have bought the ticket, you hear that there will be a CFL football game at the same time. Tickets to the football game cost $20, and you know that going to the football game will give you a benefit equal to $35. You tell your friends the following: “If I had known about the football game before buying the ticket to the lacrosse game, I would have gone to the football game instead. But now that I already have the ticket to the lacrosse game, it’s better for me to just go to the lacrosse game.” Are you making the correct decision? Justify your answer by calculating the benefits and costs of your decision.

Amy, Bill, and Carla all mow lawns for money. Each of them operates a different lawn mower. The accompanying table shows the total cost to Amy, Bill, and Carla of mowing lawns.

You are the manager of a gym, and you have to decide how many customers to admit each hour. Assume that each customer stays exactly one hour. Customers are costly to admit because they inflict wear and tear on the exercise equipment. Moreover, each additional customer generates more wear and tear than the customer before. As a result, the gym faces increasing marginal cost. The accompanying table shows the marginal costs associated with each number of customers per hour.

Georgia and Lauren are economics students who go to a karate class together. Both have to choose how many classes to go to per week. Each class costs $20. The accompanying table shows Georgia’s and Lauren’s estimates of the marginal benefit that each of them gets from each class per week.

The Canadian National Advisory Committee on Immunization (NACI) has recommended against vaccinating the whole population against the smallpox virus because the vaccination has undesirable, and sometimes fatal, side effects. Suppose the accompanying table gives the data that are available about the effects of a smallpox vaccination program.

Patty delivers pizza using her own car, and she is paid according to the number of pizzas she delivers. The accompanying table shows Patty’s total benefit and total cost when she works a specific number of hours.

Assume De Beers is the sole producer of diamonds. When it wants to sell more diamonds, it must lower its price in order to induce shoppers to buy more. Furthermore, each additional diamond that is produced costs more than the previous one due to the difficulty of mining for diamonds. De Beers’s total benefit schedule is given in the accompanying table, along with its total cost schedule.

In each of the following examples, explain whether the decision is rational or irrational. Describe the type of behaviour exhibited.

You have been hired as a consultant by a company to develop the company’s retirement plan, taking into account different types of predictably irrational behaviour commonly displayed by employees. State at least two types of irrational behaviour employees might display with regard to the retirement plan and the steps you would take to forestall such behaviour.