The value of a firm is
A. the price for which the firm can be sold minus the present value of the expected future profits.
B. larger the higher is the risk premium used to compute the firm's value.
C. smaller the higher is the risk premium used to compute the firm's value.
D. both b and c
Answer: C
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Higher nominal interest rates ________ the amount of money demanded and higher real income ________ the amount of money demanded.
A. increase; increases B. increase; decreases C. decrease; decreases D. decrease; increases
A risk averse individual
a. values a lottery at more than its expected value b. values a lottery at exactly its expected value c. values a lottery at less than its expected value d. tends to play lots of lotteries
When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called:
a. mutual interdependence. b. price leadership. c. collusion. d. monopolistic competition.
Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL. If the price of labour rises, the cost -minimizing firm should:
a) employ more capital and less labour because MPK/MPL < PK/PL. b) do nothing. c) employ more labour and less capital because MPK/MPL > PK/PL. d) employ more capital and less labour because MPK/MPL > PK/PL. e) employ more labour and less capital because MPK/MPL < PK/PL.