In General,a Profit- Maximizing Firm Will Purchase a Piece of Capital

question 31

Multiple Choice

In general,a profit- maximizing firm will purchase a piece of capital equipment if the

• A)present value of the stream of future MRPs falls below the purchase price.
• B)simple sum of the future MRPs exceeds the purchase price.
• C)present value of the stream of future MRPs exceeds the purchase price.
• D)simple sum of the future MRPs falls below the purchase price.
• E)future value of the stream of MRPs exceeds the purchase price.

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Definitions:

Normal Profit

The minimum profit necessary for a company to remain competitive in the market; it corresponds to the opportunity cost of capital.

Product Price

The amount of money charged for a product or service, determined by factors such as cost of production, market demand, and competition.

Curve Steepness

The rate at which the slope of a curve increases or decreases, often used in economics to describe the sensitivity of one variable to another.

Maximizes Profits

The process or strategy whereby a firm adjusts its production and pricing to achieve the highest possible profit.