Refer to the Following

question 67

Multiple Choice

Refer to the following:

A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a total of 500 units of output in order to maximize profit. The firm is currently producing 200 units in the Michigan factory and 300 units in the Texas factory.

At this allocation between plants, the last unit of output produced in Michigan added $5 to total cost, while the last unit of output produced in Texas added $3 to total cost.


-If the firm produces 201 units in Michigan and 299 units in Texas instead:

• A) total cost will decrease $2
• B) profit will increase $2
• C) total cost will decrease $3
• D) both a and b
• E) none of the above

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Definitions:

Direct Financing Lease

A leasing arrangement in which the lessor purchases an asset for the lessee and rents it out, with the lease payments designed to cover the original cost plus a profit margin.

Unearned Interest: Leases

Interest that has been collected on a lease agreement before it has been earned, usually according to the payment schedule.

Residual Value

The anticipated revenue from selling an asset once it has reached the end of its serviceable life.

Present Value Factors

Multipliers used to calculate the present value of a future amount of money or stream of cash flows, given a specific discount rate.