Suppose Demand Conditions in Industries X and Y Are Identical

question 30

Multiple Choice

Suppose demand conditions in industries X and Y are identical but that productivity increases by 5% in industry X and 2% in industry Y.If economy-wide productivity and the average wage each rise by 3%,we should expect that:

• A)output and employment in X will increase relative to Y
• B)output and employment in X and Y will not change relative to one another,since wages will increase by 5% in X and 2% in Y
• C)output and employment in Y will increase relative to X
• D)no statement can be made concerning output and employment in either industry without more information

Identify what constitutes an incremental cash flow for the purposes of capital budgeting.

Recognize that sunk costs and expenses not directly related to the project should not influence the project's cash flow analysis.

Recognize and calculate the impact of erosion when evaluating new projects.

Identify the role of taxation and depreciation in affecting project cash flow.

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