You offer an extended warranty for your product that is purchased by a few customers. If the product typically fails 2% of the time, the claim rate will exceed 2% of warranty purchasers because
a. adverse selection will lead those who are more reckless to purchase the warranty
b. moral hazard will lead those who purchase to be more reckless
c. you systematically underestimate product failure rates
d. Both A&B
d
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If soft drink brands are close substitutes for each other, this implies that the price elasticity for individual brands would be low.
Answer the following statement true (T) or false (F)
If the interest rate is 8% and $1 will be paid to you in 3 years, what is the present value of that dollar (to the nearest tenth of a cent)?
What will be an ideal response?
At a price of $10, the marginal revenue of a monopolist is $6. If the marginal cost of production is $8, what should the monopolist do in order to maximize profits?
A. Increase its price. B. Decrease its price. C. Keep its price at the same level. D. There is not enough information to solve.
Refer to Scenario 9.10 below to answer the question(s) that follow. SCENARIO 9.10: Investors put up $1,040,000 to construct a building and purchase all equipment for a new cafe. The investors expect to earn a minimum return of 10 percent on their investment. The cafe is open 52 weeks per year and serves 900 meals per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc. The cafe charges $6 on average per meal.Refer to Scenario 9.10. In the long run, the cafe will want to
A. go out of business. B. shut down but not go out of business. C. operate and expand. D. operate but not expand.