A Firm Pays $50,000 for a Machine That Is Used

question 171

Multiple Choice

A firm pays $50,000 for a machine that is used in production for one year,after which it is sold for $40,000 to another firm.The $10,000 difference is

• A) an explicit cost of production.
• B) economic depreciation, an implicit cost of production.
• C) normal profit.
• D) not counted as an economic cost of production.
• E) not an opportunity cost because it is not actually paid.

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Definitions:

Call Option Contracts

Financial contracts that give the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other assets at a specified price within a specific time period.

Strike Price

The fixed price at which the holder of an option can buy (call option) or sell (put option) the underlying security or commodity.

Market Value

Market value refers to the current price at which an asset or a company can be bought or sold on the open market.

November 45 Put

A put option contract with a strike price of 45 that expires in November, giving the holder the right to sell the underlying asset at the strike price.