(See Problem 2

question 9

Multiple Choice

(See Problem 2.) Robinson Crusoe has exactly 8 hours per day to spend gathering coconuts or catching fish. He can catch 2 fish per hour or he can pick 8 coconuts per hour. His utility function is U(F, C) = FC, where F is his consumption of fish and C is his consumption of coconuts. If he allocates his time in the best possible way between catching fish and picking coconuts, his consumption will be the same as it would be if he could buy fish and coconuts in a competitive market where the price of coconuts is $1, his income is

• A) $64 and the price of fish is $4.
• B) $64 and the price of fish is $.50.
• C) $16 and the price of fish is $2.
• D) $80 and the price of fish is $2.
• E) $40 and the price of fish is $.50.

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Definitions:

Depreciation Tax Shield

A reduction in taxable income for businesses that allows for the deduction of depreciation expenses.

CCA Class

Refers to the classification system for capital cost allowance used in Canada, which groups assets with similar tax depreciation properties.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the proportion of additional income that is paid in taxes.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.