Explain how a firm makes an investment decision
What will be an ideal response?
A firm will decide whether or not to invest on the basis of expected rates of return. If the expected rate of return is greater than the interest rate, the firm should make the investment. Another way to consider investment is that the firm should invest up to the point where the marginal revenue product of capital equals the price of capital.
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A business produces 4,00 . units per month which he sells at $20/unit. Costs include: $10,00 . on raw materials, $15,00 . on operators and $10,00 . on sales people. In order to break even the fixed costs will have to be:
a. $35,000 b. $40,000 c. $45,000 d. $50,000
When a large number of people in society save more and it results in a decline in national income and an increase in unemployment this is known as
a. the fallacy of composition. b. moral hazard. c. the paradox of thrift. d. marginal analysis.