The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is 50 as Ed's opportunity cost of selling is 135 and Luis' valuation of the good is 185 . Suppose Ed and Luis do not speak the same language and Ed hires an interpreter who charges 2 per hour. Ed and Luis finally agree to a price of 160 . This implies:
a. Luis' valuation of the good will increase.
b. Ed's opportunity cost will decline.
c. economic value from the transaction will decline.
d. Ed will receive to a lower benefit than Luis.
Question 2
As the output produced by a firm increases, the average fixed cost:
a. continues to decline.
b. initially increases, and then declines.
c. quickly drops to zero.
d. becomes constant.
e. declines and finally becomes negative.
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