State the Economic Decision Rule and Apply It to the Following

question 15

Essay

State the economic decision rule and apply it to the following situations:
(a)A personal computer costs about 2 cent per hour to operate.Every time it is turned on and off,there is a .00005 probability that the computer will fail,costing $700 to repair.Is it worthwhile to turn off your computer?
(b)Should you try out for the soccer or the baseball team?
(c)The date to withdraw from a course and get the $300 refund has passed.With 30 more classes left in the semester,should you drop the course?
(d)Your employer has offered you a 20% raise.Do you work more hours?
The economic decision rule is: If the marginal benefits of doing something exceed the marginal costs,do it; If the marginal costs of doing something exceed the marginal benefits,don't do it.

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Definitions:

Rate of Return

This is a measure of the profitability of an investment, calculated as a percentage of the original investment.

Initial Investment

The amount of money used to start a project, purchase assets, or establish a business operation.

Net Present Value

The Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, often used to assess the profitability of an investment.

Minimum Rate

The lowest acceptable rate of return on an investment, often used in the evaluation of projects or financial decisions.