Exhibit 13­3 Gives Data on the Number of Tools a Certain

question 45

Multiple Choice

Exhibit 13­3 gives data on the number of tools a certain firm buys to use in its productionprocess.Assume that the tools are expected to last indefinitely, that operating expenses arenegligible, and that the price of the firm's output is expected to remain constant in the future.At an interest rate of 10 percent, the firm in Exhibit 13­3 should select

• A)the maximum number of tools available because price does not decrease as output increases
• B)the minimum number of tools available because price does not increase as output increases
• C)three tools
• D)four tools
• E)five tools

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Definitions:

Risk-Free Asset

A Risk-Free Asset is an investment that theoretically guarantees its return and has no variance in its expected payout, typically government-issued securities.

Asset Beta

A measure of the risk of an asset isolated from the firm's financial risk, particularly useful in capital asset pricing models (CAPM).

Risk-Free Asset

An investment with a guaranteed return, without any risk of financial loss.

Positive Rate

An interest rate or yield that is above zero, reflecting a positive return on investment.