Scenario: This Problem Applies the Principle of Optimization Covered in Chapter

question 85

Multiple Choice

Scenario: This problem applies the principle of optimization covered in Chapter 5 to the problem of choosing how many hours to work. Paul has to decide how many hours to work per day. His boss is willing to give Paul whatever hours Paul wants up to 8 hours. All else being equal, he would rather not work, that is, Paul has positive marginal benefit from each hour of leisure. But he is an avid collector of presidential campaign buttons. The more leisure he takes, the fewer buttons he can afford. So Paul faces a trade-off between leisure and buttons. Each button costs $1.00. The table below shows Paul's marginal benefits from leisure (MBlₑᵢsᵤᵣₑ) and buttons (MBbᵤttₒn) .

-Refer to the scenario above.If the hourly wage increases from $1.00 to $1.60,Paul would choose to work ________.

• A) more hours
• B) the same number of hours
• C) fewer hours
• D) as much as he can (8 hours)

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Definitions:

Liability Recorded

The process of documenting a company's obligations or debts in its financial records.

Noncash Asset

An asset that is not in the form of cash and can include things like real estate, vehicles, equipment, and intellectual property.

Fair Value

An appraisal of the market value of an asset or liability, reflecting the price it could be sold for or the payment required to assume the liability, within a structured exchange involving market actors.

Nominal Amount

The face value of a bond or other financial instrument, as distinct from its market value or purchase price.