Benefit–cost ratio.

Question

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Answer 1

Question

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

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In the following table, complete the third column by determining the quantity sold in each country at a price of $18 per toy train. Next, complete the fourth column by calculating the total profit and the profit from each country under a single price. Price Single Price Quantity Sold Price Discrimination Country (Dollars per toy train) (Millions of toy trains) Profit (Millions of dollars) Price (Dollars per toy train) Quantity Sold (Millions of toy trains) Profit (Millions of dollars) France 18 Russia 18 Total N/A N/A N/A N/A Suppose that as a profit-maximizing firm, Le Jouet decides to price discriminate by charging a different price in each market, while its marginal cost of production remains $8 per toy. Complete the last three columns in the previous table by determining the profit-maximizing price, the quantity sold at that price, the profit in each country, and total profit if Le Jouet price discriminates. Le Jouet charges a lower price in the market with a relatively elastic…

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Answer 2

Question

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

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Answer 3

Question

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

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Answer 4

Question

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

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Answer 5

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

Answer 6

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095

The calculated BC value is less than the given value. Thus, option ‘d’ is incorrect.

Answer 7

Chapter 9, Problem 70APQ

To determine

Benefit–cost ratio.

Answer 8

Expert Solution & Answer

Explanation of Solution

Benefit (B) is $10,000 per year forever. Cost (C1) is $50,000 at year zero and (C2) $50,000 at the end of year (n) 2. Interest rate (i) is 10%.

Option (b):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.1=10,0000.1(50,000+(50,000(1+0.1)2))1.1=100,000(50,000+(50,0001.21))1.1=100,000(50,000+41,322.31)1.1=100,000(91,322.31)1.1≈1.095

The calculated BC value is nearly equal to the given value. Thus, option ‘b’ is correct.

Option (a):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))0.93=10,0000.1(50,000+(50,000(1+0.1)2))0.93=100,000(50,000+(50,0001.21))0.93=100,000(50,000+41,322.31)0.93=100,000(91,322.31)0.93<1.095

The calculated BC value is greater than the given value. Thus, option ‘a’ is incorrect.

Option (c):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.24=10,0000.1(50,000+(50,000(1+0.1)2))1.24=100,000(50,000+(50,0001.21))1.24=100,000(50,000+41,322.31)1.24=100,000(91,322.31)1.24>1.095

The calculated BC value is less than the given value. Thus, option ‘c’ is incorrect.

Option (d):

The benefit–cost ratio (BC) can be calculated as follows:

BC=Bi(C1+(C2(1+i)n))1.73=10,0000.1(50,000+(50,000(1+0.1)2))1.73=100,000(50,000+(50,0001.21))1.73=100,000(50,000+41,322.31)1.73=100,000(91,322.31)1.73>1.095