What is the net present value of a project with the following cash flows if the required rate of return is 9 percent? (round ans
1 answer:
You might be interested in
The answer is explained in detail below
Explanation:
Labor, L = 2000; Capital, K = 3000
Labour constraint,
Capital constraint ,
Solving the equation further, we get
- The range for the relative price of cloth such that the economy produces both cloth and food is 2/3 and 2
- Low cloth production → economy will use relatively more labor to produce cloth → opportunity cost of cloth is 2/3rd units of food.
- High cloth production → economy dips on labor → taking capital away from food production → raising opportunity cost of cloth to 2 units of food.
- If relative price of cloth lies between 2/3 and 2 units of food, the economy produces both goods.
- If the price of cloth decreases below 2/3 → complete specialization in food production → low compensation for producing cloth
- If the price of cloth rises above 2 → complete specialization in cloth production → low compensation for producing food