Which Economic Question Is Answered by the Decision to Produce

question 19

Multiple Choice

Which economic question is answered by the decision to produce butter instead of guns?  

• A) What to produce? 
• B) How to produce? 
• C) For whom to produce? 
• D) Who has a comparative advantage in gun production?

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Definitions:

Payback

The period of time required for the return on an investment to "pay back" the initial capital outlay.

Cost of Capital

Cost of capital refers to the minimum rate of return a company must earn on its investments to satisfy its investors, creditors, and other providers of capital.

NPV

Net Present Value, a method for assessing the worth of a project or investment by applying a discount rate to future cash flows to ascertain their current value.

Crossover Rate

The rate at which two projects have the same net present value, used in capital budgeting to compare the attractiveness of different projects.