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Shareholder Investment Principle
Shareholders, as the owners of a firm, will typically only be willing to invest their capital if the potential return is at least as great as what they could earn from their next best investment alternative. This principle drives the need for a firm to generate sufficient profits to remain attractive to its investors.
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Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Social Science
Empirical Science
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Comparing Alternatives in Decision-Making (Concert vs. Babysitting)
Decision-Making for a Taxi Driver (Australian Open vs. Work)
Choosing Between a Paid Theatre Concert and a Free Park Concert
Scarcity
Reservation Option
You have a free ticket to a concert tonight which you value at $50. You could, instead, work a shift at your job and earn $70, or you could babysit for a neighbor and earn $40. Assuming these are your only three options and you can only choose one, what is the opportunity cost of attending the concert?
Analyzing a Summer Decision
Evaluate the following statement: A person has three mutually exclusive options for their evening: 1) Go to a concert they value at $50, 2) Work a shift and earn $80, or 3) Read a book they value at $20. If they decide to work the shift, their opportunity cost is $70, representing the sum of the values of the concert ($50) and the book ($20) that they gave up. True or False?
For each economic decision described below, match it with the correct statement of its opportunity cost.
Analyzing the True Cost of a Decision
Explaining Opportunity Cost
A student has three mutually exclusive options for their Saturday afternoon: they can work a 4-hour shift at the campus library for $15 per hour, go to a movie with friends which they value at $40, or take a paid online survey that will earn them a total of $50. If the student chooses to work at the library, the opportunity cost of this decision is $____.
An individual has decided to spend their Saturday afternoon working a part-time job. To correctly identify the opportunity cost of this decision, they must follow a logical process. Arrange the following steps into the correct sequence.
The Baker's Dilemma
Alex is deciding how to spend their Friday night. They can either go to a movie, for which a ticket costs $12 and which they value at $30, or they can work a tutoring session and earn $40. These are Alex's only two options. What is the opportunity cost of choosing to go to the movie?
Economic Profit vs. Accounting Profit
Decision making under scarcity
Shareholder Investment Principle
Economic Cost
Wage as the Opportunity Cost of Free Time
Karim's Work-Leisure Decision in Madrid
Economic Rent
Learn After
Opportunity Cost of Capital
Investment Decision Scenario
An individual has $50,000 to invest. They have identified two options. Option A is to invest in a friend's established, stable business, which has consistently provided investors with a 6% annual return. Option B is to invest in a new, unproven technology company. Based on the core principle that guides a rational investor's decision, what is the minimum annual return the technology company must be projected to offer for the individual to even consider it a worthwhile investment?
Board of Directors' Project Decision
A company's board of directors is evaluating a new project that is projected to yield a 3% annual return. The average return for other investments with a similar level of risk in the market is currently 5%. According to the fundamental principle guiding shareholder investment, the board should approve this project because it generates a positive profit for the firm.
Evaluating a CEO's Strategic Vision
A firm is currently providing an 8% annual return to its shareholders. For each of the following market scenarios, match it with the most likely reaction from the firm's shareholders, based on the principle that they seek a return at least as great as their next best alternative.
Crafting an Investor Pitch
For a firm to successfully attract and retain shareholder capital, the return it offers must be at least as great as the return shareholders could earn from their ____.
A company's management is deciding whether to invest in a new internal project. To ensure they are acting in the best interest of their shareholders, they must compare the project's potential earnings against what those shareholders could earn elsewhere. Arrange the following steps in the correct logical order that management should follow to make this decision.
Evaluating a Corporate Expansion Project