Suppose You Can Type a Paper in Two Hours or Mow

question 203

Multiple Choice

Suppose you can type a paper in two hours or mow the lawn in four hours, while it takes your friend Gabriela eight hours to type a paper or two hours to mow the lawn. Which of the following is true?

• A) You have a comparative advantage in typing.
• B) You have a comparative advantage in mowing the lawn.
• C) You and Gabriela could save time if you mowed her lawn while she typed your paper.
• D) You and Gabriela cannot gain from specialization and trade.

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Definitions:

Time Value of Money

The belief that possessing money in the present is worth more than holding the same amount later on because it has the potential to increase in value.

Capital Budgeting Methods

Techniques used by companies to evaluate the desirability of investments or expenditures. Major methods include net present value (NPV), internal rate of return (IRR), and payback period.

Accounting Rate of Return

A measure of the return expected on an investment, calculated by dividing the average annual profit by the initial investment cost.

After-Tax Net Income

The amount of profit a company remains with after all tax expenses have been deducted from its total income.