Professor Nightsoils Utility Function Is U N (B N, P

question 63

Multiple Choice

Professor Nightsoils utility function is U N (B N, P N) = B_N + 4P^1/2_N and Dean Interfaces utility function is U I (B I, P I) = B_I + 2P^1/2_I, where B N and B I are the number of bromides and P N and P I are the number of platitudes consumed by Nightsoil and Interface respectively.If Nightsoils initial endowment is 4 bromides and 10 platitudes and if Interfaces initial endowment is 3 bromides and 15 platitudes, then at any Pareto efficient allocation in which both consume positive amounts of both goods,

• A)Interface consumes 3.50 bromides.
• B)Nightsoil consumes the same ratio of bromides to platitudes as Interface.
• C)Interface consumes 2 bromides.
• D)Interface consumes 5 platitudes.
• E)Interface consumes 3 bromides.

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Definitions:

Net Present Value

An analysis that assesses the worth of a project or investment by comparing all incoming and outgoing cash flows against a discount rate.

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments.

Payback Method

A capital budgeting method that calculates the time needed to recoup the initial investment from the cash inflows.

Time Value Of Money

The idea that money in hand now is more valuable than the same amount in the future because of its ability to generate earnings.