Related to the Economics in Practice on Page 197

question 188

Multiple Choice

Related to the Economics in Practice on page 197. Which of the following represents a situation in which a school is experiencing diseconomies of scale?

• A) Student enrollment decreases by 30 percent and average total cost increases by 50 percent.
• B) Student enrollment decreases by 50 percent and average total cost decreases by 20 percent.
• C) Student enrollment decreases by 25 percent and average total cost increases by 10 percent.
• D) Student enrollment decreases by 30 percent and average total cost does not change.

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Definitions:

Profitability Index

A financial tool used to determine the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Shareholder Wealth

The total value of all financial and capital assets owned by the shareholders of a company, aimed to be maximized through corporate strategies.

Internal Rate

Often refers to the internal rate of return (IRR), which is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Mutually Exclusive

Situations or events that cannot both occur at the same time, indicating a clear choice between two options.