Paulene and Charles, the Only Two People in an Economy

question 9

Multiple Choice

Paulene and Charles, the only two people in an economy, can spend their time making either herbs or eggs.Each has four hours in total to work.Paulene can make either 36 bunches of herbs and 0 dozen eggs or no herbs and 12 dozen eggs in her four hours.Charles on the other hand can make 16 bunches of herbs if he spends all his time on herb production (and no eggs) or he can make 8 dozen eggs in his four 4 hours (and no herbs) .Which statement is true?

• A)Paulene's opportunity cost of making one bunch of herbs is forgoing three of a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
• B)Paulene's opportunity cost of making one bunch of herbs is forgoing a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
• C)Paulene's opportunity cost of making one bunch of herbs is forgoing three of a dozen eggs; Charles opportunity cost of making one bunch of herbs is two of a dozen eggs.
• D)Paulene's opportunity cost of making one bunch of herbs is forgoing 1/3 of a dozen eggs; Charles opportunity cost of making one bunch of herbs is ½ a dozen eggs.
• E)None of the above.

Compare initial costs with terminal values to make project decisions.

Calculate and interpret the Profitability Index (PI) for investment decisions.

Identify and understand the preferred method of capital budgeting in a given context.

Analyze projects with non-normal cash flows to make accept/reject decisions.

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Definitions:

Relative Deprivation

A feeling of dissatisfaction or injustice experienced by people who believe they have less than they deserve, often in comparison to others.

Race Riots

Violent conflicts that arise from tensions or confrontations between racial groups within a community or society.

Social Unrest

A state of discontent, disagreement, or disorder within a community, often leading to protests, strikes, or violence.

Intergroup Behaviour

Interactions and behaviors that occur between different groups or social categories, often influenced by social norms, prejudice, and group identity.