Your Friend Owns a Snow Cone Stand That He Works

question 129

Essay

Your friend owns a snow cone stand that he works by himself.He produces about 25 snow cones per hour.He wants to be able to produce twice as many snow cones per hour so he buys a second machine.He notices that he can only produce 10 more snow cones an hour.He jokes that he could have doubled his output with the second machine if he only had four hands.Using your knowledge of the production process,explain to your friend what you think has happened when he added more capital to his production process.

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Definitions:

Compounded Semi-annually

Describes a type of interest calculation where the interest is added to the principal amount twice a year, leading to interest on the interest in the next compounding period.

Ordinary Perpetuity

A series of indefinite cash flows that occur at regular intervals.

Ordinary Annuity

A financial product where payments of a fixed amount are received at the end of equal intervals.

Nominal GNP

Gross National Product measured in current prices, without adjusting for inflation.