Kim used to work at "The Big One" accounting firm, and she earned $50,000 a year. She saved her money and has now invested $100,000 in her own firm. Profit is $20,000 a year, which Kim receives as her only compensation. She concludes that this is great
because a 20 percent return is much better than the 8 percent she could get in another investment (the opportunity cost of the funds). What is wrong with this line of thinking?
While Kim is correct in understanding the opportunity cost of her invested funds, she is ignoring the opportunity cost of her time. Presumably this opportunity cost is $50,000 . so her total implicit cost would be this amount plus the $8,000 in foregone interest. Note that this analysis ignores taxes, which could alter the calculations.
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When players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called a:
A. Nash equilibrium. B. prisoner's dilemma. C. failure of dominant strategies. D. commitment problem.
Refer to the above table. Assuming constant opportunity costs
A) neither country will be willing to engage in trade at any rate of exchange of product A for product B. B) both countries will be willing to engage in trade at a rate of exchange of 0.3 unit of product A for 1 unit of product B. C) both countries will be willing to engage in trade at a rate of exchange of 3 units of product A for 1 unit of product B. D) both countries will be willing to engage in trade at a rate of exchange of 1.5 unit of product A for 1 unit of product B.
GDP excludes: a. business purchases of investment goods, such as factories. b. government purchases of military equipment
c. the building of a new apartment complex. d. none of the above.
The analysis of the three major macroeconomic markets shows:
a. That GDP is a constant figure which is not influenced by any movements in the three markets. b. That the three markets are uncorrelated and movements in one market are independent from movements in the other two markets. c. That movements in one market cause predictable changes in the other two markets. d. A) and B) are both correct.