Katie and Hugh Are Producing Pies and Jars of Pickles

question 75

Multiple Choice

Katie and Hugh are producing pies and jars of pickles. Katie can produce either 200 jars of pickles or 100 pies per month. Hugh can produce either 800 jars of pickles or 200 pies per month. Currently, each divide their time equally between production of the two goods per month -- Katie produces 100 jars of pickles and 50 pies while Hugh produces 400 jars of pickles and 100 pies. In order for Katie and Hugh to jointly gain from specialization, which of the following changes should take place?

• A)Hugh should produce more pies and fewer jars of pickles.
• B)Katie should produce more pies and fewer jars of pickles.
• C)Katie and Hugh should both produce more pies and fewer jars of pickles.
• D)Katie and Hugh should both produce more jars of pickles and fewer pies.
• E)Katie should produce more jars of pickles and fewer pies.

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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.