The Firm in the Table Below Produces Denim Jeans and Each

question 2

Multiple Choice

The firm in the table below produces denim jeans and each unit of capital represents one sewing machine. The MRP for each of machines 10 through 14 is provided. Each sewing machine delivers a stream of MRPs beginning one year from now, for a total of 2 years. Suppose that after 2 years each sewing machine is worth nothing. $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Number of } & \text { Annual MRP } \\\text { Sew ing Machines } & \\\hline 10 & \$ 2000 \\\hline 11 & \$ 1800 \\\hline 12 & \$ 1600 \\\hline 13 & \$ 1400 \\\hline 14 & \$ 1200 \\\hline\end{array}\\\text { TABLE 15- } 2\end{array}$$
-Refer to Table 15- 2. Suppose the interest rate is 4%, the purchase price of a sewing machine is
$3000, and the firm is holding its optimal capital stock. If the interest falls to 2%, how will this firm adjust its capital stock?

• A) it will increase its number of machines from 13 to 14
• B) it will not change its capital stock
• C) it will reduce its number of machines from 12 to 11
• D) it will increase its number of machines from 11 to 12
• E) it will reduce its number of machines from 14 to 13

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Definitions:

Physical Health

The state of well-being of the body, devoid of illness, injury, or pain, often achieved through proper nutrition, exercise, and rest.

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The formal and informal pathways along which information flows in an organization.