Suppose an exhaustible resource can be sold only this period or in the next period. The marginal cost of extraction is constant and equal to $2. The current and next year prices of the resource are $12 and $13, respectively. At what interest rate the owner of the resource will be indifferent between selling it today or in the next period?

Use Figure 13.2 which depicts a monopolist firm to help with the following question. Define the area of total costs that this firm will incur if it is maximizing profit. Use the letters that appear on the graph to identify the area

What will be an ideal response?

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the:

A. Opportunity cost of the capital good B. Rate of return on the investment C. Length of the investment D. Treasury bill rate