#1

Children in poor neighborhoods often have bleak outlooks on life and see little gain from studying. In a recent experiment, children in poor neighborhoods were paid $100 for each A they earned during a six-week grade reporting cycle.Suppose a participant in this experiment was expending $0 worth of effort in studying for each class before the experiment. Over the next 6 weeks, the student has a math class and an English class, where getting an A in math would require the student to exert $116 worth of effort, while getting an A in English would require the student to exert $80 worth of effort.

In this experiment, the student (Would or would not) increase time studying for math, and the student (Would or would not) increase time studying for English.

#2 Your insurance firm processes claims through its two facilities: facility A and facility B. Each month, facility A handles 7,000 claims and incurs in $38,000 fixed costs and $112,000 in variable costs. Each month, facility B handles 12,000 and incurs $154,000 in fixed costs and $108,000 in variable costs.

Hint: Be careful not to commit the sunk-cost fallacy in your analysis.

If you anticipate a moderate decrease in the number of claims, you should lay off workers in facility (A or B) in order to decrease costs.