The Appropriate Discount Rate for a Firm Is

question 60

Multiple Choice

The appropriate discount rate for a firm is:

• A)the bank rate.
• B)its opportunity cost of capital.
• C)the prime rate.
• D)its depreciation rate.

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Definitions:

Substitution Effect

The change in the consumption pattern of goods due to a change in relative prices, holding the level of utility constant.

Output Effect

The change in total output resulting from a change in input quantities or the introduction of new processes or technologies in the production.

Price of Capital

The cost of using capital goods, such as equipment or buildings, which is often reflected in interest rates or rental charges.

Complementary to Labor

Refers to technology or tools that enhance the productivity of workers, increasing output.