Suppose Alphonso’s town raised the price of bus tickets to $1 per trip (while the price of burgers stayed at $2 and his budget r
emained $10 per week.) Draw Alphonso’s new budget constraint. What happens to the opportunity cost of bus tickets?
1 answer:
Answer:
(attached graph)
The increase in the ticket price makes the budget line slope to decrease. There will be less ticket available for Alphonso.
The increase in the bus tickets makes the opportunity cost of the hamburger to decrease as now, consuming an hamburger will make Alphonso renounce to a lesser amount of bus tickets. As the the opportunity cost is the goods or services we don't consume in favor for those we do.
Explanation:
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Answer:
Accept Project A and reject Project B
Explanation:
See the images to get the answer.
Decision: Required rate of return = 16% = Cost of capital.
If Internal rate of return (IRR) > the cost of capital = Accept the project.
If Internal rate of return (IRR) < the cost of capital = Reject the project.
From the basis of the formula, we can accept the project A because the IRR of Project A (19%) is higher than the cost of capital (16%). On the other hand, we can reject the project B because the IRR of Project B (14%) is smaller than the cost of capital (14%).
