A period within one year and the long run is a period longer than one year.

  1. Peter pays $9.99 for an all-you-can eat pizza buffet. How would you predict the number of pizzas that Peter will eat using utility theory?
  2. Consider an NFL quarterback who makes millions of dollars per year and a schoolteacher. Who is likely to receive more economic rent in his/her job? Explain your answer.

3.You have won the lottery. There are two payment options for you. The first option is a lump sum payment of $10 million that you will receive immediately. The second option is an annual payment of $1 million for each of the next 12 years. Assume there is no inflation. How would you make a decision between the two options?

  1. “In economics, the short run commonly refers to a period within one year and the long run is a period longer than one year.” Explain why this is incorrect, or at least an oversimplification.

Sample Solution

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