What are the information costs associated with forward contracts?
What will be an ideal response?
As a result of counterparty risk, buyers and sellers of forward contracts will incur information
costs when analyzing the creditworthiness of potential trading partners.
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The Public Service Company of Colorado is a natural monopoly in the transmission and distribution of electric power. As such, it will incur an economic loss if it
A) goes out of business. B) prices its services at average total cost. C) prices its services at marginal cost. D) all of the above
The Bulldog Beanery Coffee Shop is a perfectly competitive firm currently employing 30 workers. The marginal revenue product of the 30th worker is $7/hour. The wage rate is $8/hour. To increase profits, this firm should
A. decrease employment until the MRP of labor equals $8.00. B. increase the price of coffee so that the marginal revenue product increases to $8.00 per hour. C. increase employment until the MRP of labor equals $8.00. D. continue hiring 30 workers because the firm earns a surplus of $1.00 on each worker hired.