Author Question: Suppose that many consumers tend to over-state the discount rate that should be used for computing ... (Read 29 times)

charchew · **on:** Jul 1, 2018

Suppose that many consumers tend to over-state the discount rate that should be used for computing the net present value of education, just as they do when making investments in durable goods like cars and appliances.

What would happen if consumers (as a group) started to use lower discount rates when making decisions about their education? A) NPV of a degree declines, demand for eduction declines
B) NPV of a degree declines, demand for education increases
C) NPV of a degree increases, demand for education declines
D) NPV of a degree increases, demand for education increases

Question 2

To deter a potential entrant, an existing firm in a market may threaten to sharply increase production so that the entrant will be left with a small share of the market. This may be a credible threat if:

A) production exhibits economies of scale.
B) production exhibits diseconomies of scale.
C) production costs may fall due to learning-by-doing.
D) A and C are correct.
E) B and C are correct.