Why Does Total Output in an Economy Increase When Each

question 194

Multiple Choice

Why does total output in an economy increase when each person specializes?

• A) because there is much less competition for the same resources
• B) because each person spends more time producing that product for which they have a comparative advantage
• C) because a wider variety of products can be produced with specialization
• D) because more people will be producing products than before

Approach subjectively estimated cash flows with caution, incorporating conservative and reasonable estimates.

Understand the principles of capital budgeting decisions.

Identify and calculate relevant and irrelevant cash flows in capital budgeting.

Understand and apply depreciation methods including Modified Accelerated Cost Recovery System (MACRS) for tax purposes.

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Definitions:

NPV Estimates

Calculations used to determine the Net Present Value of an investment, forecasting the difference between the present value of cash inflows and outflows.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase its profits by increasing sales, given its fixed costs.

Scenario Analysis

A process of analyzing possible future events by considering alternative possible outcomes (scenarios), thus helping in the decision-making process.

Net Present Value

A calculation that compares the value of all cash inflows and outflows of a project or investment, discounted back to their present value.