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Question
Scenario 5.5:Engineers at Jalopy Automotive have discovered a safety flaw in their new model car. It would cost $500 per car to fix the flaw, and 10,000 cars have been sold. The company works out the following possible scenarios for what might happen if the car is not fixed, and assigns probabilities to those events:
Scenario Probability Cost
A. No one discovers flaw .15 $0
B. Government fines firm .40 $10 million
(no lawsuits)
C. Resulting lawsuits are lost .30 $12 million
(no government fine)
D. Resulting lawsuits are won .15 $2 million
(no government fine)
Refer to Scenario 5.5. Which of the following statements is true?
A) The expected cost of not fixing the car is less than the cost of fixing it.
B) The expected cost of not fixing the car is greater than the cost of fixing it.
C) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are subjective.
D) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are not equal.
Answer
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For net present value calculations, the rate of return that one could earn by investing in another project with similar risk is known as the:
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If the inflation rate falls and nominal interest rates are unchanged,
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If an individual has $10,000 in a savings account paying 3% and the inflation rate is 2%, the nominal interest rate is
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Q:
The real interest rate is
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The first term in an NPV calculation is usually
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The "NPV Criterion" is that a firm should invest in a new capital project if
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Q:
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Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power?
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Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power?
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Who does NOT earn economic rent in a competitive factor market?
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E) Only owners of physical properties earn economic rents
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Scenario 14.4:
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TP = 100L - 0.125L2 MP = 100 - 0.25L
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L = PL -5 MEL = 2L + 5
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Use the following statements to answer this question:
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Q:
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Q:
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Q:
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Q:
The marginal revenue product can be expressed as the
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D) average physical product of the input times the marginal revenue received from the sale of the final product.