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Eco Answers

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Chapter 1: Suggested Answers to Application Problems

. USAir was very busy analyzing the practices of its competitors-to-be, before it made the move to enter the low-cost commuter airline market. It looks like the efforts included attempts to measure the efficiency of operations and practices on these other airlines. To survive, USAir's MetroJet needs to adopt efficient practices, which will promote low costs. Of course, service must be of sufficient quality as well. The MetroJet team appeared to be "benchmarking" both operations efficiency and service quality in order to enter the market with better chances for survival.

Chapter 2: Suggested Answers to Application Problems

. These findings could be thought to support the assumption of self-interest. In the case of mandatory airbag use, you might feel safer in your car, which lowers your personal cost of risky driving behaviors - so you drive less cautiously. Unfortunately, in this scenario, you would be discounting the cost to the other driver(s) of your behavior. In the NCAA case, more referees increase the expected cost of committing a foul - so you commit fewer. Incentives can influence behavior! . The expected value of position 1 is the same as that of position 2: $104,000. If you are risk averse, the risk of position 2 lowers the utility you would get from it. Since expected values are equal, you'd prefer position 1. If you are indifferent between position 2 and, say, a risk-free salary of $150,000 per year, then your personal certainty equivalent of position 2 would be $150,000 per year. Given this, your risk premium is $46,000. It is the amount that would be needed to compensate you for the risk of position 2. 
 . Your utility is affected by any valued activity you engage in or thing you consume. If you have a strong commitment to the goals of the non-profit organization, or enjoy

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