John Is Trying to Decide How to Divide His Time

question 100

Multiple Choice

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table.  
Should John spend a third hour cleaning windows?

• A)Yes, because he would earn $28.
• B)Yes, because the additional amount he would earn is $14, which is greater than his opportunity cost of $7.
• C)No, because the additional amount he would earn is $6, which is less than his opportunity cost of $7.
• D)Yes, because the additional amount he would earn is $6, which is better than earning nothing.

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Definitions:

Borrowed Money

Funds that have been loaned to an entity and must be repaid to the lender, often with interest, at a future date.

Balance Sheet Equation

The fundamental accounting equation representing the relationship between an entity's assets, liabilities, and equity (Assets = Liabilities + Equity).

Investing Activities

Financial transactions related to the acquisition or sale of long-term assets and other investments.

Cash Flow

The net amount of cash being transferred into and out of a business, considered in terms of operating, investing, and financing activities.