Use the Table Below to Choose the Correct Answer

question 99

Multiple Choice

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday.

If Crusoe and Friday want to maximize their consumption possibilities,

• A) Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed.
• B) Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.
• C) Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption.
• D) both individuals should strive for self-sufficiency, which always maximizes output.

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Definitions:

Cost-Volume-Profit Graph

A visual representation showing the relationship between a company's costs, sales volume, and profits at various levels of activity.

Break-Even Point

The level of production or sales at which total revenues equal total expenses, resulting in no net loss or gain.

Operating Leverage

The degree to which a company uses fixed operating costs, with all else being equal, the higher the operating leverage, the more sensitive net operating income is to a given percentage change in sales.

Cost-Volume-Profit Graph

A graphical representation that shows the relationship between the total cost, total revenue, and level of output or volume, to analyze the profitability at different levels of operation.