A Firm Is Trying to Determine If It Should Launch

question 110

Multiple Choice

A firm is trying to determine if it should launch a product. The product has an expected life of three years. It will bring in cash flows of $10,000 in each of the three years. The company estimates that it will invest $28,000 in product research and development costs. Assume a discount rate of 8%. Based on NPV, what should the firm do?

• A) Launch the product because NPV is greater than the amount to be invested
• B) Not launch the product because NPV is greater than the amount to be invested
• C) Launch the product because the amount to be invested is greater than NPV
• D) Not launch the product because the amount to be invested is greater than NPV

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Definitions:

ATC

Average Total Cost, which is the total cost divided by the quantity of output produced, reflecting the cost per unit of output.

Pure Monopolist

A market structure where a single seller dominates the market, with no rivals, supplying a unique product without close substitutes.

Pure Monopolist

A pure monopolist is a market participant that is the sole provider of a product or service, thus controlling the entire supply and influencing price without competition.

Profit-Maximizing

A business strategy focusing on actions that increase the difference between total revenues and total costs to achieve the highest possible profit.