Boyd Manufacturing operates in a perfectly competitive market. The firm recently purchased a new structure with an expected rate of return of 18 percent
If the market rate of interest is 10 percent, was the firm's decision to purchase the structure a wise one? Explain.
Yes. A perfectly competitive firm should keep investing in capital up to the point where the expected rate of return is equal to the interest rate. In this case, the expected rate of return on the investment is higher than the market rate of interest. This implies that the opportunity cost of the funds used to purchase the structure is lower than the expected revenues from the structure. Thus, it was a good decision.
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To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:
a. Trade can make everyone better off. b. People face trade-offs. c. Markets are usually a good way to organize economic activity. d. A country's standard of living depends on its ability to produce goods and services.
If the number of dollars needed to buy a representative basket of goods falls, the price level
a. falls, so the value of money falls. b. falls, so the value of money rises. c. rises, so the value of money falls. d. rises, so the value of money rises.
In an economic model, assumptions
A) must be applicable to all real-world situations. B) must be eliminated before being used to make sure the model is realistic. C) are not important in determining the usefulness of the model. D) define the set of circumstances in which the model is most likely to be applicable in the real world.
Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as:
A. cyclically unemployed. B. frictionally unemployed. C. structurally unemployed. D. employed.