A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year. The current real rate of interest is 8 percent. The firm should:
A. Undertake the investment because the expected rate of return of 12 percent is greater than
the real rate of interest
B. Undertake the investment because the expected rate of return of 10 percent is greater than
the real rate of interest
C. Undertake the investment because the expected rate of return of 9 percent is greater than
the real rate of interest
D. Not undertake the investment because the expected rate of return of 7 percent is less than
the real rate of interest
B. Undertake the investment because the expected rate of return of 10 percent is greater than
the real rate of interest
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Suppose that technological advancement makes labor more productive. What is likely to happen to wages and to potential output?
A) Wages decrease and potential output increases. B) Wages decrease and potential output decreases. C) Wages increase and potential output increases. D) Wages increase and potential output decreases.
A leftward shift of the supply curve will lead to a(n)
A) increase in equilibrium price. B) excess demand at the old equilibrium price. C) decrease in quantity demanded. D) All of the above.
The relative price of a textbook is
A) the money price of the textbook divided by the money price of some other good. B) the price of the textbook compared with what students think it should cost. C) the amount it cost to make the textbook. D) what the author earned for writing the textbook.
Answer the following statement(s) true (T) or false (F)
1. You can often predict people’s behavior if you know what their incentives are. 2. Lower prices are negative incentives to producers but positive incentives to consumers. 3. Positive incentives are generally considered more effective than negative incentives. 4. An absolute advantage occurs when a person, a region, or country can produce a good or service at a lower opportunity cost than others.