If a Potato Farmer Expands Output, He Finds That the Increase

question 197

Multiple Choice

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:

• A) profit is being maximized.
• B) he should not have expanded output.
• C) he should produce even more output.
• D) the firm is wasting resources.
• E) the farmer should go out of business.

Understand the basic principles of capital budgeting and investment evaluation techniques.

Calculate and interpret the payback period for investment projects.

Understand and apply the concept of net present value (NPV) in investment decisions.

Apply the concept of the internal rate of return (IRR) to assess investment viability.

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Definitions:

Extraction Costs

The expenses associated with the removal of raw materials from the earth, such as labor, energy, and equipment costs.

Rare Earth Metals

Rare earth metals are a group of seventeen elements used in the manufacture of a variety of advanced technological devices, characterized by their scarcity and unique electronic properties.

Supply Curve

represents the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing to offer for sale, holding all else constant.

Quantity Supplied

The total amount of a good or service that producers are willing and able to sell at a given price in a given time period.