You Have Won a Contest and Are Allowed to Choose

question 60

Multiple Choice

You have won a contest and are allowed to choose between two prizes. One option is to receive $200 today and another $200 one year from now. The second option is $100 today and an additional $325 one year from now. At what interest rate (if any) is the present value of the two prizes identical?

• A) 0 percent
• B) 5 percent
• C) 10 percent
• D) 25 percent
• E) none of the above

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Definitions:

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, reflecting the true profitability of the business.

Long Run

A time frame in economics where all factors of production and costs are variable, allowing for complete adjustment to changes in the market or economic environment.

Profit-Maximizing

A strategy or point at which a business reaches the highest possible level of profit through the adjustment of sale prices, production costs, and output volume.

Level of Output

The total volume of goods or services produced by a firm, industry, or economy within a given period.