A bank manager advises all of his loan officers that the average cost of funds for the bank over the past year has been 6%. The bank has borrowed $1 million at 5%, another $1 million at 6% and another $1 million at 7%
Future borrowing costs are expected to continue at 7%. The manager however, instructs his loan officers that they are authorized to make loans at interest rates that are equal to or greater than the bank's average cost of borrowing. How would you evaluate the bank manager's decision?
The bank manager has made an error. The marginal cost of borrowing money is 7% so he should have instructed his loan officers to lend out the money as long as it earned the bank 7% or better. If it only lends out money at 6% or better it would lose money on every dollar earned if these loans were contracted at anything less than 7%.
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The figure above shows the situation facing Smart Digit, Inc, a firm in monopolistic competition that produces calculators. What is the firm's economic profit per day?
A) zero B) between $1 and $700 C) between $701 and $900 D) more than $901
When the price of a bagel rises from $0.45 to $0.65, the quantity of cream cheese demanded falls from 12,000 to 10,000 ounces per year. Use the midpoint formula to calculate the cross-price elasticity between bagels and cream cheese
What does the sign imply about the relationship between these two goods?
"Economists assume people are selfish." Do you agree with this statement or not? Explain
What will be an ideal response?
Which of the following is correct concerning opportunity cost?
a. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway. b. To compute opportunity costs, you should subtract benefits from costs. c. Opportunity costs and the idea of trade-offs are not closely related. d. Rational people should compare various options without considering opportunity costs.