Your roommate, Serafina, a psychology major, said, “The problem with economics is that it assumes that consumers and firms always make the correct decision. But we know that everyone’s human, and we all make mistakes.” Do you agree with her comment?

Muggsy Bogues Company purchased equipment for $286,360 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $26,520. Estimated production is 40,600 units and estimated working hours are 19,000. During 2014, Bogues uses the equipment for 550 hours and the equipment produces 1,100 units.

Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.
(a) Straight-line method for 2014 (Round answer to 0 decimal places, e.g. 45,892.) $
(b) Activity method (units of output) for 2014 (Round rate per unit to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $
(c) Activity method (working hours) for 2014 (Round rate per hour to 2 decimal places, e.g. 5.35 and final answer to 0 decimal places, e.g. 45,892.) $
(d) Sum-of-the-years’-digits method for 2016 (Round answer to 0 decimal places, e.g. 45,892.) $
(e) Double-declining-balance method for 2015 (Round answer to 0 decimal places, e.g. 45,892.)

1. A) Yes, I agree with her. One cannot make predictions about economic behavior because in reality people make incorrect choices in many situations.
2. B) I disagree with her. Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave rationally, meaning they make the best decisions given their knowledge of the costs and benefits.
3. C) Yes, I agree with her. Economic theory should allow for irrational behavior so that we can have more reliable predictions.

D) I disagree with her. If we cannot assume that decisions are correct, then we will not be able to examine the moral implications of these decisions