Suppose That in Enigma, Ohio, Klutzes Have a Productivity of $1,000

question 5

Multiple Choice

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month. You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity. Kandos, however, have more patience than klutzes. Listening to an hour of dull lectures is as bad losing $200 for a klutz and $150 for a kando. There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month

• A) if 15 < H < 20.
• B) if 15 < H < 40.
• C) for all positive values of H.
• D) only in the limit as H approaches infinity.
• E) if 12.50 < H < 16.67.

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Definitions:

Fixed Costs

Costs that do not change with the level of goods or services produced by a business, such as rent, salaries, and loan payments.

Operating Risk

The possibility of experiencing financial losses due to factors affecting the day-to-day operations of a company.

EPS

Earnings Per Share; a key financial metric that calculates the portion of a company's profit allocated to each outstanding share of common stock, indicating the company's profitability.

Breakeven Analysis

This analysis determines the point at which revenue equals costs, resulting in neither profit nor loss.