Suppose a Producer Requires a Smaller Quantity of Inputs to Produce

question 193

Multiple Choice

Suppose a producer requires a smaller quantity of inputs to produce carrots than to produce onions. Is this information sufficient to determine in which good the producer has a comparative advantage?

• A) Yes, the producer has a comparative advantage in carrots.
• B) Yes, the producer has a comparative advantage in onions.
• C) No, because information about the costs of inputs is missing.
• D) No, because information about other producers is missing.

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Definitions:

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses.

Degree of Financial Leverage

A measure of a company's use of borrowed funds to finance its operations, indicating the sensitivity of its earnings to fluctuations in operational income.

EPS

Earnings Per Share (EPS) is a financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock.

Operating Leverage Analysis

Examination of how fixed operating costs relate to profit levels, assessing the degree to which a firm can increase profits by increasing sales.