Consider a Production Possibility Frontier with Jeans on the Vertical

question 62

Multiple Choice

Consider a production possibility frontier with jeans on the vertical axis and shoes on the horizontal axis.As the country moves along the frontier closer to the horizontal axis,

• A)more tradeoffs occur.
• B)more shoes are produced.
• C)more jeans are produced.
• D)the country eventually chooses an unattainable point.
• E)free lunches occur.

Understand relevant and irrelevant costs for decision making.

Identify the steps involved in managerial decision-making.

Understand the concept of opportunity cost in decision making.

Differentiate between different types of costs (fixed, variable, relevant, sunk) and their relevance to decision-making.

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Definitions:

Stand-Alone Project

In capital budgeting, a project with no competition either for the task it is to accomplish or for resources.

Cost of Capital

The rate of return a company must pay to its investors for the use of their capital, essentially the cost of financing and investing in the company's assets.

NPV

Net present value. A capital budgeting technique that rates projects according to the total present value of all their associated cash flows. The higher the total or net present value, the better.

Capital Budgeting Decision

The process by which a business determines whether projects such as investments in equipment or new products are worth pursuing.