No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Seven: Production: Man at Work 175 offers no condemnation of differential incomes; indeed much of salary differentials are due to the natural endowment of gifts that God give us (intelligence, beauty, talents, etc.). If the salary differential is not due to exploitation of others, there seems to be no biblical basis for condemnation. 7. Aside from the significant negative effects of fatigue—and economics tests are ones that you usually want your brain fresh for—studying will produce diminishing returns such that each hour studying will provide less and less benefit, while the costs associated with fatigue as well as the general opportunity costs will rise. Go to sleep (just not in my class!). 8. One example could be diminishing returns to labor at a lawn mowing service. After you have more than enough workers to man all the mowing machines through daily cutting hours, more labor won’t do any good. You’ll need to buy more mowers (capital). 9. Most fast food restaurants have “right sized” their operation based on many factors, but you should think about possible economies of scale (are there any? where might they end?). How many customers are they trying to satisfy? But there are other issues that we didn’t address in the chapter—in this case consumer preferences may also be a factor. And obviously you can’t leave a hamburger out on the shelf in aisle four, with the fries on aisle six. The point of this is simply to think about the factors discussed in this chapter and how they might apply to different business configurations. 10. The owner supplied resources (labor, facilities, etc.) that all have an opportunity cost. 11. Yes. As our example of the lemonade stand indicates, if the opportunity cost is large, you will suffer economic loss. This occurs when entrepreneurs do not use resources in their highest valued uses, as judged by the market’s imputation of value. 12. A. fixed B. fixed C. variable D. variable E. fixed (in the short run only, variable in the long run) 13. False, the reverse is true. 14. Marginal Revenue = Marginal Costs. Profit maximization implies that the firm is using the resources as efficiently as possible, thus freeing additional resources to satisfy other social needs.