All other things held constant, premiums on options will increase when the
A) exercise price increases.
B) volatility of the underlying asset increases.
C) term to maturity decreases.
D) futures price increases.
B
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A firm with market power faces the following estimated demand and average variable cost functions:Qd = 39,000 - 500P + 0.4M - 8,000PRAVC = 30 - 0.005Q + 0.0000005Q2where Qd is quantity demanded, P is price, M is income, and PR is the price of a related good. The firm expects income to be $40,000 and PR to be $2. Total fixed cost is $100,000. What price should the firm charge in order to maximize profit?
A. $50 B. $62 C. $70 D. $42.50 E. $48
The idea that people will substitute cheaper commodities for more expensive commodities is called
A. the marginal effect. B. the utility effect. C. the substitution effect. D. the real-income effect.