Answer the following statements true (T) or false (F)
1) Operating profits omit interest payments.
2) When the maximum amount of interest is paid on a loan, the present value of the cost of the investment exceeds the initial cost of the investment.
3) Salvage values are strictly positive.
4) When a firm uses its own funds to self-finance an investment, the operating profit exceeds the taxable profit.
5) Financing an investment with debt increases the net present value of the investment.
1) TRUE
2) FALSE
3) FALSE
4) FALSE
5) TRUE
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The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A
The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?
a. 8.3 percent b. 108.3 percent c. 4.8 percent d. 38.2 percent
When there are significant barriers to entry and there are few firms in the industry,
A. at least one will exit until the economic profit disappears. B. economic profit will go to zero. C. economic profit will continue for the firms in the industry. D. normal profit will be garnered by the firms.
Suppose the only characteristic of beer that a consumer cares about is alcohol content. Currently, Bud Light and Miller Lite have the same alcohol content.
a. Using 
to denote ounces of Miller Lite and 
to denote ounces of Bud Light, what's the simplest possible utility function that can describe this consumer's tastes over the two products.
b. Suppose Bud Light
lowers its alcohol content by 50%. How would you change the utility function to account for this? c. Derive the MRS for the functions in (a) and (b) --- and interpret your answer. What will be an ideal response?