Table 11-5 A Small Island Off the Coast of Cape Cod Contains

question 162

Multiple Choice

Table 11-5
A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island - Restaurants 1 and 2, and Stores A and B - think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip.
-Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $500. How many ferry trips should there be to maximize the total surplus of the four business owners?

• A)1
• B)2
• C)3

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Definitions:

Financial Position

A snapshot of the resources, liabilities, and equity of an entity at a specific point in time, illustrating its economic standing.

Cash Flow From Assets

The total amount of money being transferred in and out of a company's operations, investments, and financing, specifically relating to its assets.

Cash Flow To Creditors

The amount of cash companies pay to their creditors and lenders, including payments for interest and principal on debt.

Cash Flow To Shareholders

Dividends paid out by a firm less net new equity raised.