Question 1

What is opportunity cost? How is opportunity cost linked to CBA? Can you give an example of where you experienced opportunity cost outside of the context you have viewed so far in the course?

Question 2 – Complete this question in Excel

a)   Using the information in the above table, calculate the net social benefit.

b)   If the projects are mutually exclusive, which project should be selected. Justify your answer.

c)   If the projects are not mutually exclusive, which project(s) should be selected. Justify your answer.

Question 3 – Complete this question in Excel

Suppose Jimbo’s Moving Truck business is considering expanding. To decide if expanding is beneficial to the business, Jimbo wants to conduct a cost-benefit analysis.

a)   Specify the options or set of alternatives under consideration.

b)  To implement the expansion Jimbo requires five new employees. Each employee is expected to be paid $32,000. The cost of interviewing and hiring new employees is $10,000. To ensure the employees are useful to Jimbo’s business he needs to purchase a second truck at the cost of $45,000. The additional resources will increase Jimbo’s revenue by $250,000. In addition to this, Jimbo is expected to receive an additional benefit from free advertising on the side of the new truck which he values at $30,000. Conduct the CBA for Jimbo. Determine if Jimbo should expand his business.