Jan's Dry Cleaning holds $10,000 on a typical day, although only $2,000 is essential for carrying out business. Making a midday deposit is estimated to reduce cash holdings to $8,000 and cost an extra $80 per year in lost production. If, in addition, an armored car service is engaged to pick up cash more frequently for a fee of $120 per year, cash holdings will be further reduced to $6,000 per day. Employing a computerized cash management service for an annual fee of $180 would reduce cash holdings further to $4,000. If any reduction in cash holdings will be invested in government bonds earning 10%, then how much money should Jan's hold?
A. $4,000
B. $6,000
C. $8,000
D. $10,000
Answer: A
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In contrast with nominal values, real values refer to nominal values
A) corrected for price changes. B) minus personal income taxes. C) minus interest rates. D) corrected for hours of work.
The substitution effect is
A. always greater than the income effect. B. always less than the income effect. C. sometimes less than the income effect. D. never greater than the income effect.
According to the adaptive rationality standard, people's goals:
A. are a choice variable, and people's choices about which goals to pursue are made efficiently. B. are fixed, and people are efficient at pursuing whatever goals they happen to hold at the moment of action. C. are fixed, and people are often inefficient at pursuing those goals, which explains why people experience regret. D. are a choice variable, and people may not be efficient at choosing which goals to pursue.
If the quantity of pretzels demanded decreases by 8% when the price of beer increases by 6%, the cross-price elasticity of demand between pretzels and beer is
A. -14. B. -1.33. C. -0.75. D. 2.