A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer
With a 9% interest rate, the present value of the $3 million payoff is $1,949,794.16 . Because the present value of the payoff is lower than the initial investment, the firm should not undertake the project.
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What do economists mean by the phrase "sunk costs are sunk"?
a. Sunk costs are irretrievable, but they do lower profits and thus affect the firm's output level. b. Sunk costs are a primary reason why marginal costs tend to increase. c. Sunk costs cannot be recovered and are irrelevant to future decision making. d. Sunk costs lower consumer welfare, because producers "pass on" these costs in the form of higher prices.
According to the "law of demand"
A) demand generates a supply sufficient to satisfy the demand. B) nothing will be produced unless there is a demand for it. C) people will purchase less of a good when its price rises. D) wants are indefinitely expansible and can never be fully satisfied. E) whatever people want will eventually be supplied.
One common example of a price floor is the minimum wage
a. True b. False Indicate whether the statement is true or false
If, in a competitive market, marginal benefit is less than marginal cost
A) the net benefit to consumers from participating in the market is less than the net benefit to producers. B) the government must force producers to raise prices in order to achieve economic efficiency. C) the output is greater than the equilibrium quantity. D) the output is less than the equilibrium quantity.