LeBron James, a prominent basketball player, is considering signing on for another two years with his current team. The team managers, however, face a salary cap of $90 million for their team and have already contracted players for a total of $75 million. James, used to earning $20 million a year, has been offered to play for $15 million this year and $27 million in his second year. The current interest rate is 6.5%. Should he agree to the contract?
What will be an ideal response?
Yes, James should agree to the contact. To compensate for the $5 million reduction in his salary, James would need to earn at least $26.07 million in his second year [$20 million + ($5 million ? 1.065)] to maintain his usual $20 million a year.
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Which of the following Nobel laureates became known for the study of asymmetric information?
A) Michael Spence B) Ronald Coase C) George Ackerlof D) Gary Becker
Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000 income that he gave up is counted as part of the life-coaching business's
a. total revenue. b. opportunity costs. c. explicit costs. d. marginal costs.