a good written goal for developing a system is B
On January 1, 2020, Jacobs Company sells land financed through an $80,000 note, issued by Andress Company. The note is an $80,000, 8%, annual interest-bearing note. Andress agrees to repay the $80,000 proceeds on December 31, 2021. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note.
Required:
Prepare all entries for Jacobs over the note term, including any year-end adjustments. Use the effective interest method to amortize the discount.
Answer:
Entries are shown below.
Explanation:
To record the journal entries, we first need to calculate interest payment and principal as per the present value. This is done below:
PV Factor Present Value
Interest Payment $6,400 1.7125 $10,960
Principal $80,000 0.8116 $64,928
$75,888
Journal Entries
Date Particular Debit ($) Credit ($) Working
Jan 1, 2020 Note Receivable 80,000
Discount on Receivable 4,112
Land 75,888
Dec 31, 2020 Cash 6,400
Discount on Receivable 1,948 (8348-6400)
Interest Revenue 8,348 (75888*11%)
Dec 31, 2021 Cash 6,400
Discount on Receivable 2,162 (4279-3600)
Interest Revenue 8,562
(75888+1,948)*11%
Dec 31, 2021 Cash 80,000
Notes Receivable 80,000
Presented below are selected ledger accounts of Whispering Corporation as of December 31, 2020.
Cash $65,000
Administrative expenses 130,000
Selling expenses 104,000
Net sales 702,000
Cost of goods sold 273,000
Cash dividends declared (2020) 26,000
Cash dividends paid (2020) 19,500
Discontinued operations (loss before income taxes) 52,000
Depreciation expense, not recorded in 2019 39,000
Retained earnings, December 31, 2019 117,000
Effective tax rate 20%
Required:
a. Compute net income for 2020.
b. Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information.
Answer:
Part a
Whispering Corporation
Income Statement for the year ended December 31, 2020.
Net Sales 702,000
Less Cost of Sales (273,000)
Gross Profit 429,000
Less Expenses
Administrative expenses (130,000)
Selling expenses (104,000)
Depreciation expense (39,000)
Net Income 195,000
Part b
Whispering Corporation
Partial income statement for the year ended December 31, 2020.
Continuing Activities 195,000
Less Discontinued operations ( 52,000
Total Comprehensive income 143,000
Explanation:
Income Statement only includes incomes and expenses.
Earnings per share is what shareholders expect to receive per share out of profits earned.
60. Pricing decisions may include which of the following?
a. Bundling
b. Pricing Strategy
C. Target group their concepts of Value
d. All of the above
Answer:
b. Pricing Strategy is the right answer
Explanation:
please mark me as brainliest answer
Answer:
Hello There!!
Explanation:
I think the answer is possibly d. All of the above.
hope this helps,have a great day!!
~Pinky~
Influential factors such as cost, price, break-even analysis, sales potential,
and competition are evaluated as part of which phase? *
Concept development
Generating ideas
Screening ideas
Market Product
Product Development
Answer:46
Explanation:
If the toothpaste market is monopolistically competitive, product differentiation would not take the form of: production of many varieties of toothpaste, including those with whitening agents. quality differences among the various brands. setting the price of the product well below the price charged by the rivals. differentiation in the locations where certain toothpastes are available.
Answer:
setting the price of the product well below the price charged by the rival
Explanation:
A monopolistic competition is when there are many firms selling differentiated products in an industry. A monopoly has characteristics of both a monopoly and a perfect competition. the demand curve is downward sloping. it sets the price for its goods and services.
An example of monopolistic competition are restaurants
When firms are earning positive economic profit, in the long run, firms enter into the industry. This drives economic profit to zero
If firms are earning negative economic profit, in the long run, firms leave the industry. This drives economic profit to zero
in the long run, only normal profit is earned
If a monopolistically competitive sets price below competitors, losses would be made. So, there is no incentive to do this
According to the law of demand, as prices fall, ceteris paribus
quantity demanded decreases.
demand increases.
quantity demanded increases.
demand decreases
Answer:
quantity demanded increases
Explanation:
price and demand are inversely related
this means as price falls it increases the willingness and ability of consumers to purchase a product.
On January 1, 2018, Frontier Corporation purchased for $474,000, equipment having a useful life of ten years and an estimated salvage value of $24,000. Adventure has recorded depreciation of the equipment on the straight-line method. On December 31, 2025, the equipment was sold for $84,000. What is the journal entry to record this sale
Answer:
Frontier Corporation
Journal Entry to record the sale:
Debit Cash $84,000
Credit Sale of Equipment $84,000
To record the sale of the equipment.
Others:
Debit Sale of Equipment $474,000
Credit Equipment $474,000
To transfer the equipment account to the Sale of Equipment account.
Debit Accumulated Depreciation $360,000
Credit Sale of Equipment $360,000
To transfer the accumulated depreciation to the Sale of Equipment account.
Debit Loss from Sale of Equipment $30,000
Credit Sale of Equipment $30,000
To close the Sale of Equipment account to income statement.
Explanation:
a) Data and Calculations:
January 1, 2018: Purchase of equipment = $474,000
Estimated useful life = 10 years
Estimated salvage value = $24,000
Depreciable amount = $450,000 ($474,000 - $24,000)
Straight-line Annual Depreciation Expense = $45,000 ($450,000/10)
Accumulated depreciation after 8 years = $360,000 ($45,000 * 8)
Net book value of equipment = $114,000 ($474,000 - $360,000)
December 31, 2015: Proceeds from sale of equipment = $84,000
Analysis:
Cash $84,000 Sale of Equipment $84,000
Sale of Equipment $474,000 Equipment $474,000
Accumulated Depreciation $360,000 Sale of Equipment $360,000
Loss from Sale of Equipment $30,000 Sale of Equipment $30,000
Which of the following is the most profitable investment for a candy shop that earns $1 profit per pound of candy? (5 points) Group of answer choices:
Worker at $10 per hour, producing eight pounds of candy per hour
Worker at $12 per hour, producing 16 pounds of candy per hour
Machine with $5 per hour operating cost, producing 10 pounds of candy per hour Machine with $8 per hour operating cost, producing 14 pounds of candy per hour
Worker at $12 per hour, producing 16 pounds of candy per hour
Answer:
Worker at $12 per hour, producing 16 pounds of candy per hour
Explanation:
Software Distributors reports net income of $48,000. Included in that number is depreciation expense of $6,500 and a loss on the sale of land of $4,300. A comparison of this year's and last year's balance sheets reveals a decrease in accounts receivable of $18,000, a decrease in inventory of $11,500, and an increase in accounts payable of $38,000. Required: Prepare the operating activities section of the statement of cash flows using the indirect method. (List cash outflows and any decrease in cash as negative amounts.)
Answer:
Operating Activities Section
Net Income $48,000
Adjust for non -cash items :
Depreciation expense $6,500
Loss on the sale of land $4,300
Adjust for changes in working capital :
Decrease in accounts receivable $18,000
Decrease in inventory $11,500
Increase in accounts payable $38,000
Net Cash Provided by Operating Activities $126,000
Explanation:
The Indirect Method of preparing the cash flow from operating activities section reconciles the Net Income for the Year to Operating Cash flow amount.
This reconciliation adjusts non cash items previously included in net income and changes in working capital to arrive at Operating Cash flow amount as shown above.
Stork Associates paid $65,400 for a 20-seat skybox at Veterans Stadium for eight professional football games. Regular seats to these games range from $55 to $165 each. At one game, an employee of Stork entertained 18 clients. Stork furnished food and beverages for the event at a cost of $2,200. The game was preceded by a bona fide business discussion, and all expenses are adequately substantiated.
a. Stork can deduct $ for this event.
b. If there was no bona fide business discussion either preceding or after the event, there is and the deduction would be $.
Answer: a. $1100
b. $0
Explanation:
It should be noted that according to IRS, 50% of the expenses on business meals will be deducted by tax payers when some conditions are met such as:
• Expenses incurred shouldn't be costly or extravagant.
• Expenses are necessary.
• Expenses on meal were incurred separately from expenses on entertainment.
• The taxpayer was present there when the expenses were incurred.
Based on the above,
a. The amount that Stork can deduct will be:
= 50% × $2200
= 0.5 × $2200
= $1100
b. If there was no bona fide business discussion either preceding or after the event, the deduction will be $0 because in such case, no expenses were incurred on food or entertainment.
Summit Services Co. offers its services to individuals desiring to improve their personal images. After the accounts have been adjusted at May 31, the end of the fiscal year, the following balances were taken from the ledger of Summit Services:
Fees Earned $243,000
Dividends 33,000
Rent Expense 50,800
Retained Earnings 540,000
Supplies Expense 12,400
Wages Expense 213,300
Miscellaneous Expense 5,900
Required:
Journalize the closing entries required to close the accounts.
Answer:
May-31
Dr Fees earned $243,000
Retained earnings $33,500
Cr Rent expense $50,800
Cr Supplies expense $12,400
Cr Wages expense $213,300
Cr Miscellaneous expense $ 4,300
May-31
Dr Retained Earnings $33,000
Cr Dividends $33,000
Explanation:
Preparation to Journalize the closing entries required to close the accounts.
May-31
Dr Fees earned $243,000
Retained earnings $33,500
($213,300+$12,400+$50,800-$243,000)
Cr Rent expense $50,800
Cr Supplies expense $12,400
Cr Wages expense $213,300
Cr Miscellaneous expense $ 4,300
(To close the Expenses )
May-31
Dr Retained Earnings $33,000
Cr Dividends $33,000
(To close the dividends )
What is the term for the daily activity of handling economic resources and planning for future economic goals?
Answer:
Money Management
Explanation:
Brenda, a self-employed taxpayer, travels from Chicago to Barcelona (Spain) on business. She is gone 10 days (including 2 days of travel) during which time she spends 5 days conducting business and 3 days sightseeing. Her expenses are $1,500 (airfare), $200 per day (meals), and $400 per night (lodging). Because Brenda stayed with relatives while sightseeing, she only paid for 5 nights of lodging. What is Brenda's deduction for: If required, round your answers to the nearest dollar.
Answer:
Airfare $1,050
Meals $700
Lodging $2,000
Explanation:
Calculation to determine Brenda's deduction
a. Calculation to determine Brenda's deduction for Airfare
Airfare=(70% × $1,500)
Airfare=$1,050
Therefore Brenda's deduction for Airfare is $1,050
b.Calculation to determine Brenda's deduction for Meals
Meals=[(200/2)*7]
Meals=$700
Therefore Brenda's deduction for Meals is $700
c.Calculation to determine Brenda's deduction
for Lodging
Lodging= [400*5]
Lodging=$2,000
Therefore Brenda's deduction
for Lodging is $2,000
On December 1, 2021, Coronado Industries exchanged 48000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Coronado at a cost of $45 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $60 per share (the shares were originally issued at $35 per share). As a result of this exchange, Coronado's total stockholders' equity will increase by
Answer:
$2,880,000
Explanation:
Calculation to determine what Coronado's total stockholders' equity will increase by
Increase in total stockholders' equity =[(48000*45)-(48000 * (60-45))]
Increase in total stockholders' equity =$2,160,000+$720,000
Increase in total stockholders' equity =$2,880,000
Therefore the total stockholders' equity will increase by $2,880,000
The company budgeted for production of 2,400 units in June, but actual production was 2,500 units. The company used 19,850 pounds of direct material and 980 direct labor-hours to produce this output. The company purchased 21,700 pounds of the direct material at $6.70 per pound. The actual direct labor rate was $19.20 per hour and the actual variable overhead rate was $1.80 per hour.
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead efficiency variance for June is: _________
a. $36 U
b. $36 F
c. $40 U
d. $40 F
Answer:
d. $40 F
Explanation:
Calculation to determine what The variable overhead efficiency variance for June is
First step is to calculate the SH
SH = 2,500 units × 0.4 hour per unit
SH= 1,000 hours
Now let calculate the Variable overhead efficiency variance
Using this formula
Variable overhead efficiency variance = (AH - SH) × SR
Let plug in the formula
Variable overhead efficiency variance= (980 hours - 1,000 hours) × $2 per hour= (-20 hours) × $2 per hour
Variable overhead efficiency variance= $40 F
Therefore Variable overhead efficiency variance is $40 F
You own a portfolio that has $1,600 invested in Stock A and $2,700 invested in Stock B. Assume the expected returns on these stocks are 11 percent and 17 percent, respectively. What is the expected return on the portfolio
Answer:
the expected return on the portfolio is 14.77%
Explanation:
The computation of the expected return on the portfolio is shown below:
The expected return is
= ($1,600 ÷ $4,300) × 11% + ($2,700 ÷ $4,300) × 17%
= 14.767 %
= 14.77%
The $4,300 comes from
= $1,600 + $2,700
= $4,300
hence, the expected return on the portfolio is 14.77%
The same is considered
Gilberto Company currently manufactures 90,000 units per year of one of its crucial parts. Variable costs are $3.20 per unit, fixed costs related to making this part are $100,000 per year, and allocated fixed costs are $87,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $4.40 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 90,000 and buying 90,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?
Answer:
Part 1
total incremental cost of making 90,000 units = $388,000
total incremental cost of buying 90,000 units = $396,000
Part 2
There is a cost advantage of $8,000 of making than buying, therefore the company should continue to manufacture the part.
Explanation:
total incremental cost of making 90,000 units
Variable costs are ($3.20 x 90,000 units) $288,000
Fixed Costs $100,000
Total $388,000
total incremental cost of buying 90,000 units
Purchase Price ($4.40 x 90,000 units) $396,000
Total $396,000
Decision :
There is a cost advantage of $8,000 of making than buying, therefore the company should continue to manufacture the part.
In June 2015, the unemployment rate declined to 5.3 percent from 5.5 percent in May. The labor force participation rate also declined from May to June, from 62.9 percent to 62.6 percent. If the labor force participation rate had remained unchanged from May to June, the unemployment rate for June 2015 would be
Answer: A. greater than 5.3 percent because the value in the numerator of the formula for the unemployment rate would increase more than the value in the denominator.
Explanation:
The unemployment rate is calculated by dividing the number of those who are unemployed but actively seeking employment by the labor force.
= Unemployed / Labor force
If the labor force participation rate had remained unchanged then that would mean that the denominator for the unemployment rate did not change while unemployment did.
The unemployment rate will therefore be greater than 5.3% because the numerator which is the unemployment figure, would have increase more than the denominator.
Vaughn Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $2,088,000 on March 1, $1,236,000 on June 1, and $3,090,260 on December 31. Vaughn Company borrowed $1,083,960 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year, $2,493,000 note payable and an 10%, 4-year, $3,319,800 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.
Answer:
9.57 %
Explanation:
The computation of the weighted-average interest rate used for interest capitalization purposes is shown below:
Particulars Loan Amount Interest
9 % 5 year note payable $2,493,000 ($2,493,000 × 9 %) = $224,370
10 % 4 year note payable $3,319,800 ($3,319,800 × 10 %) = $331,980
Total $5,812,800 $556,350
Now
Weighted- average interest rate is
= $556,350 ÷ $5,812,800
= 9.57 %
What are the dimensions of organizational climate in restaurant management?
The Joint Stock Company is:
A) An association of persons
B) An association of funds
C) A mixture of an association of funds and persons
D) None of the above
Cityscape Hotels has 200 rooms available in a major metropolitan city. The hotel is able to attract business customers during the weekdays and leisure customers during the weekend. However, the leisure customers on weekends occupy fewer rooms than do business customers on weekdays.
Thus, Cityscape plans to provide special weekend pricing to attract additional leisure customers. A hotel room is priced at $180 per room night. The cost of a hotel room night includes the following:
Cost Per Room Night (at normal occupancy)
Housekeeping service................................................................$ 23
Utilities............................................................................................7
Amenities........................................................................................3
Hotel depreciation.........................................................................55
Hotel staff (excluding housekeeping)............................................42
Total....................................................................................$130
The special weekend price is proposed for $120 per room night. At this price, it is anticipated that average occupancy for the weekend (Friday, Saturday, and Sunday) will increase from 30% to 50% of available rooms.
A. What is the contribution margin for a room night under the normal pricing if only the hotel depreciation and hotel staff (excluding housekeeping) are assumed fixed for all occupancy levels?
B. Determine the contribution margin for a room night under the proposed weekend pricing.
C. Prepare a differential analysis showing the differential income for an average weekend between the existing (Alternative 1) and discount (Alternative 2) price plan.
D. Should management accept the proposed weekend pricing plan? Explain.
Answer: See explanation and attachment
Explanation:
a. What is the contribution margin for a room night under the normal pricing if only the hotel depreciation and hotel staff (excluding housekeeping) are assumed fixed for all occupancy levels?
Price = $180
Less: Variable Costs:
House keeping staff = $23
Utilities = $7
Amenities = $3
Total variable costs = $33
Contribution margin = $147
B. Determine the contribution margin for a room night under the proposed weekend pricing.
Price = $120
Less: Variable Costs:
House keeping staff = $23
Utilities = $7
Amenities = $3
Total variable costs = $33
Contribution margin = $87
C. Prepare a differential analysis showing the differential income for an average weekend between the existing (Alternative 1) and discount (Alternative 2) price plan.
Check attachment for solution
D. Should management accept the proposed weekend pricing plan? Explain.
No. From the calculation in C, there is reduction in income.
The market demand curve in perfect competition is found by A. the interaction of supply and demand at the individual firm and consumer levels. B. horizontally summing the demand curves of the individual consumers. C. utility maximizing behavior of the "representative consumer." D. horizontally summing the supply curves of the individual firms in the industry.
Answer:
b
Explanation:
A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.
In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.
Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.
the demand curve is a graph of the quantity demanded on the vertical axis and the price on the horizontal axis. it is downward sloping
market demand curve is the aggregation of demand curves
Because goods are identical, market demand curve can be determined by horizontally summing the demand curves of the individual consumers
Dennis Kozlowski, John Thain, and Raj Rajaratnam are former CEOs mentioned in the text that have been involved in corporate governance problems to one degree or another. What did Dennis Kozlowski do that was considered inappropriate behavior? Multiple Choice He provided insider information to the Goldman Sachs' board. He sold 500,000 shares of his personal stock right before a negative quarterly earnings report was released. He spent $2 million of company funds for his own birthday party. He created a Ponzi scheme that grew to $65 billion dollars before the SEC shut it down. He spent $1.2 million of company funds redecorating his office while demanding cost cutting from employees.
Answer: He spent $2 million of company funds for his own birthday party.
Explanation:
The article in question relates to the Agency problem which is a problem that arises as a result of management acting in such a way as to benefit themselves instead of the shareholders that they are supposed to be maximizing wealth for.
Dennis Kozlowski was the former CEO of Tyco. In this position, he committed several financial crimes such as throwing a $2 million birthday party that was funded by the company. He eventually went to prison for this and the other crimes.
Jacques lives in Miami and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Jacques does not operate this guitar business, he can work as a financial advisor, receive an annual salary of $50,000 with no additional monetary costs, and rent out his showroom at the $15,000 per year rate. No other costs are incurred in running this guitar business.
Identify each of Jake's costs in the following table as either an implicit cost or an explicit cost of selling guitars.
Implicit Cost Explicit Cost
The wages and utility bills that Jake pays
The salary Jake could earn if he worked as an accountant
The wholesale cost for the guitars that Jake pays the manufacturer
The rental income Jake could receive if he chose to rent out his showroom
Complete the following table by determining Jake's accounting and economic profit of his guitar business.
Profit (Dollars)
Accounting Profit
Economic Profit
Answer:
Explicit Costs
The wages and utility bills that Jake pays
The wholesale cost for the guitars that Jake pays the manufacturer
Implicit costs
The salary Jake could earn if he worked as an accountant
The rental income Jake could receive if he chose to rent out his showroom
Accounting profit = $62,000
economic profit = $-3000
Explanation:
Explicit cost includes the amount expended in running the business. They include rent , salary and cost of raw materials
Implicit cost is the cost of the next best option forgone when one alternative is chosen over other alternatives. Jacques forgoes the opportunity to earn a salary and rent out his showroom when he started his business
Accounting profit= total revenue - explicit cost
$793,000 - ($430,000 + $301,000) = $62,000
Economic profit = accounting profit - implicit cost
$62,000 - (50,000 + 15,000) =$-3000
. During 2007, Eaton Corp. started a construction job with a total contract price of $7,000,000. It was completed on December 15, 2008. Additional data are as follows: 2007 2008 Actual costs incurred in current year $2,700,000 $3,050,000 Estimated remaining costs 2,700,000 — Billed to customer 2,400,000 4,600,000 Received from customer 2,000,000 4,800,000 Under the completed-contract method, what amount should Eaton recognize as gross profit for 2008?
Answer:
$1,250,000
Explanation:
Calculation to determine what amount should Eaton recognize as gross profit for 2008
Using this formula
2008 Recognized gross profit=Total contract price- 2007 Actual costs incurred in current year -2008 Actual costs incurred in current year
Let plug in the formula
2008 Recognized gross profit=$7,000,000 - $2,700,000 - $3,050,000
2008 Recognized gross profit=$1,250,000
Therefore The amount that Eaton should recognize as gross profit for 2008 is $1,250,000
On January 2, 2020, Pronghorn Company sells production equipment to Fargo Inc. for $52,000. Pronghorn includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Pronghorn incurs costs related to warranties of $890. At December 31, 2020, Pronghorn estimates that $640 of warranty costs will be incurred in the second year of the warranty.
Required:
Prepare the journal entry to record this transaction on January 2, 2020, and on December 31, 2020.
Answer:
January 2, 2020
Dr Cash $52,000
Cr Sales Revenue $52,000
December 31, 2020
Dr Warranty expense $890
Cr Cash $890
December 31, 2020
Dr Warranty expense$640
Cr Warranty Liabiltiy $640
Explanation:
Preparation of the journal entry to record this transaction on January 2, 2020, and on December 31, 2020.
January 2, 2020
Dr Cash $52,000
Cr Sales Revenue $52,000
December 31, 2020
Dr Warranty expense $890
Cr Cash $890
December 31, 2020
Dr Warranty expense$640
Cr Warranty Liabiltiy $640
what is the meaning of life
Answer:
To be totally honest... I cant tell you. All I know so far is that you are born to die
Explanation:
After a devastating hurricane, households try to secure loans to repair and rebuild. Other things equal, this would lead toan increase in interest rates of home repair loans as the demand for those loans increased.an increase in interest rates of home repair loans as the demand for those loans increased.an increase in interest rates of home repair loans as the supply for those loans decreased.an increase in interest rates of home repair loans as the supply for those loans decreased.a decrease in interest rates of home repair loans as the supply for those loans increased.
Answer:
Other things equal, this would lead to:
an increase in interest rates of home repair loans as the demand for those loans increased.
Explanation:
With an increase in the demand for house repair loans, as a result of the devastation wrought by the hurricane, the rate of interest on loans normally increases with demand. The concept of scarcity of loanable funds (or limited resources) is the root cause of this increase in house loan rate. The reverse becomes the case when there is a decrease in demand.
The nations of Pamland and Lillytonia can produce two goods, DVD
players and wheat. In a single year, Pamland can produce 150 DVD players
or 300 bushels of wheat and Lillytonia can produce 200 DVD players or
600 bushels of wheat. Which of the following deals would Pamland and
Lillytonia be willing to accept? *
A) There are no deals for trade that Lillytonia would be willing to accept because
Lillytonia could make more of both goods.
B) Lillytonia sells 1/4 bushels of wheat to Pam and gets 1 DVD player in return.
C) Lillytonia sells 4 bushels of wheat to Pam and gets 1 DVD player in return.
D) Lillytonia sells 2.5 bushels of wheat to Pam and gets 1 DVD player in return.
D) Lillytonia sells 2/5 bushels of wheat to Pam and gets 1 DVD player in return
Answer:
The best deal would be option B) that is
Lillytonia sells 1/4 bushels of wheat to Pam land and gets 1 DVD player in return.
Explanation:
STEP 1
The output of DVD per unit of labor for Pamland = 150.
The output of Bushels of wheat per unit of labor for Pamland= 300.
The output of DVD per unit of labor for Lillytonia = 200.
The output of Bushels of wheat per unit of labor for Lillytonia= 600.
STEP 2
To calculate the comparative advantage, we use the following formula:
Comparative Advantage = DVD Output / Wheat Output
STEP 3
In Pamland, the opportunity cost, or the comparative advantage, of DVD is
300 / 150 = 2 bushels of wheat.
The opportunity cost of wheat in Pamland is 120/ 300 = 0.5 DVDs.
In Lillytonia the opportunity cost, or comparative advantage, of DVD is 600/200 = 3 bushels of wheat, while
The opportunity cost of wheat in Lillytonia is 200/600 = 1/3 or 0.33333 DVDs
STEP 4
As is clear from the calculations, Pamland should produce more wheat because it has the lower opportunity cost during production 2 against 3 for Lillytonia. Conversly, Lillytonia has the lowest opportunity cost for the production of DVD clocking 1/3 against a higher 1/2 for Pamland.
The countries should therefore trade in such a way that Pamlan is selling it's Wheat while Lillytonia is selling it's DVDs.
STEP 5
Given that Pamland's 2 bushels of wheat will cost it 0.5 DVDs, 4 bushels will thus cost it 1 DVD. It is impracticable (in any case) to have 1/2 of a DVD player.
Cheers