Exhibit 2-1 Production Possibilities Curve Data in Exhibit 2-1

question 25

Multiple Choice

Exhibit 2-1 Production possibilities curve data In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is:

• A)0.
• B)1 unit of consumption goods.
• C)2 units of consumption goods.
• D)4 units of consumption goods.
• E)there is not enough information to estimate the opportunity cost.

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Definitions:

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

CAPM Approach

The Capital Asset Pricing Model, a formula used to determine the expected return of an investment based on its risk relative to the market.

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate them for the risk they undertake by investing their capital.

Retained Earnings

The portion of a company's profits not distributed to shareholders as dividends but kept back to reinvest in the business.