Which of the following describes the reason why scarcity exists? ...

[123654777]

Which of the following describes the reason why scarcity exists?
 
  A. Governments make bad economic decisions.
  B. The gap between the rich and the poor is too wide.
  C. Wants exceed the resources available to satisfy them.
  D. There is too much unemployment.

Question 2

Boyd Manufacturing operates in a perfectly competitive market. The firm recently purchased a new structure with an expected rate of return of 18 percent.
 
  If the market rate of interest is 10 percent, was the firm's decision to purchase the structure a wise one? Explain.

[mistyjohnson]

Answer to Question 1

C Answer C uses the definition of scarcity on page 2.

Answer to Question 2

Yes. A perfectly competitive firm should keep investing in capital up to the point where the expected rate of return is equal to the interest rate. In this case, the expected rate of return on the investment is higher than the market rate of interest. This implies that the opportunity cost of the funds used to purchase the structure is lower than the expected revenues from the structure. Thus, it was a good decision.

[123654777]

Thank you

[mistyjohnson]

Happy to help you