This topic contains a solution. Click here to go to the answer

Author Question: Frank Banks manufactures and sells piggy banks in a perfectly competitive market. The firm recently ... (Read 28 times)

CBme

  • Hero Member
  • *****
  • Posts: 548
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.

Question 2

When XYZ Corporation produces 35 units of output its average variable cost is 5 . The marginal cost of the 36th unit of output is 7 . If the firm chooses to produce the 36th unit of output, what will happen to average variable cost? Explain.
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

isabelt_18

  • Sr. Member
  • ****
  • Posts: 342
Answer to Question 1

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.

Answer to Question 2

If the firm decides to produce the 36th unit of output, its average variable cost will rise because the marginal cost is greater than the average variable cost.




CBme

  • Member
  • Posts: 548
Reply 2 on: Jun 29, 2018
:D TYSM


smrtceo

  • Member
  • Posts: 344
Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

 

Did you know?

Not getting enough sleep can greatly weaken the immune system. Lack of sleep makes you more likely to catch a cold, or more difficult to fight off an infection.

Did you know?

In 2010, opiate painkllers, such as morphine, OxyContin®, and Vicodin®, were tied to almost 60% of drug overdose deaths.

Did you know?

HIV testing reach is still limited. An estimated 40% of people with HIV (more than 14 million) remain undiagnosed and do not know their infection status.

Did you know?

In ancient Rome, many of the richer people in the population had lead-induced gout. The reason for this is unclear. Lead poisoning has also been linked to madness.

Did you know?

Computer programs are available that crosscheck a new drug's possible trade name with all other trade names currently available. These programs detect dangerous similarities between names and alert the manufacturer of the drug.

For a complete list of videos, visit our video library