Q1 ) Luigi is contemplating a career change. He can become a coach and train oth
ID: 1113798 • Letter: Q
Question
Q1 ) Luigi is contemplating a career change. He can become a coach and train other people to jump over flag poles. To become a coach he has to attend a $500 class. He should become a coach if:
1) the net present value of becoming a coach is positive.
2) the total benefit of becoming a coach is positive.
3) the opportunity cost of becoming a coach is sufficiently low.
4) The $500 is a sunk cost, so he should become a coach no matter what.
q2) Vicky Volunteer rings bells for The Salvation Army during the holidays. At her current level of production, the marginal social benefit derived from Vicky’s bell ringing is less than the marginal social cost incurred from Vicky’s bell ringing. Based on this scenario, which of the following is most likely?
1)
Vicky is producing the socially optimal level of bell ringing
2)
Vicky is producing more bell ringing than is socially optimal
3)
Vicky is producing less bell ringing than is socially optimal
4)
Vicky’s bell ringing is generating a negative externality
1) the net present value of becoming a coach is positive.
2) the total benefit of becoming a coach is positive.
3) the opportunity cost of becoming a coach is sufficiently low.
4) The $500 is a sunk cost, so he should become a coach no matter what.
q2) Vicky Volunteer rings bells for The Salvation Army during the holidays. At her current level of production, the marginal social benefit derived from Vicky’s bell ringing is less than the marginal social cost incurred from Vicky’s bell ringing. Based on this scenario, which of the following is most likely?
1)
Vicky is producing the socially optimal level of bell ringing
2)
Vicky is producing more bell ringing than is socially optimal
3)
Vicky is producing less bell ringing than is socially optimal
4)
Vicky’s bell ringing is generating a negative externality
Explanation / Answer
1. The right answer is 1) the net present value of becoming a coach is positive.
Explanation: While making an investor, a rational investor should compare the benefits with the costs. In order to ascertain if an investment should be pursued, the investors cannot consider only the total benefit but also total cost. the present value of the costs must be subtracted from the present value of the benefits to find out the net present value of the investment. If the net present value of the investment is positive, then only the investment should be pursued.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.