Frank Banks manufactures and sells piggy banks in a perfectly competitive market. The firm recently purchased new equipment with an expected rate of return of 7 percent
If the market rate of interest is 8 percent, was the firm's decision to purchase the equipment a wise one? Explain.
No. A perfectly competitive firm should keep investing in capital up to the point where the expected rate of return is equal to the interest rate. In this case, the interest rate is higher. This implies that the opportunity cost of the funds used to purchase the equipment is greater than the expected revenues from the equipment. Thus, it was a bad decision.
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Refer to Figure 18-2. Consider the market for U.S. Dollars against the British pound shown in the graph above. From this graph we can conclude that the dollar price of a British pound has ________ to ________ dollars per pound
A) decreased; 2.00 B) increased; 2.17 C) decreased; 0.46 D) increased; 0.50
A single-price monopoly is economically inefficient because, at the profit-maximizing output:
A. marginal revenue exceeds product price at all profitable levels of production. B. monopolists always price their products on the basis of the ability of consumers to pay rather than on costs of production. C. MC > P. D. society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce.