Explain what economists mean by rational choice and think of ...

[pepyto]

Explain what economists mean by rational choice and think of three choices that you've made today that are rational.
 
  What will be an ideal response?

Question 2

Suppose that the price of capital is 10 per unit and the price of labor is 8 per unit. Write an equation for an isocost line using this information. What would be the slope of this isocost line?
 
  What will be an ideal response?

[ryrychapman11]

Answer to Question 1

A rational choice is one that compares the costs and benefits of the different actions and then chooses the action that has the greatest benefit over cost for the person making the choice. Three rational choices made by students include: a) The choice to skip breakfast to go to class. In this case the benefit is the higher grade in the class and the cost is the breakfast forgone. b) The choice to stop talking with a friend on the phone and start studying for an impending exam. In this case the benefit is the resulting higher grade in the class and the cost is the conversation forgone. c) The choice to do laundry today rather than watch television. In this case the benefit is the fact the student will have clean clothes to wear and the cost is the loss of the entertainment the television show would have provided.

Answer to Question 2

The equation for the isocost line would be (10  K) + (8  L) = TC. The slope of the isocost line would be (-PL/PK) or -8/10.