Suppose That Each Worker Must Use Only One Shovel to Dig

question 114

Multiple Choice

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,an increase in the price of shovels will result in

• A) fewer shovels being purchased to produce the same number of trenches.
• B) more workers being hired to produce the same number of trenches.
• C) the firm wishing to produce more trenches.
• D) no change in the firm's input mix.

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Definitions:

Infrequently-Traded Assets

Assets that do not trade on a regular basis on the secondary market, making their valuation and liquidity different from frequently traded assets.

Liquidity Premiums

Additional returns investors demand for holding securities that are not easily convertible to cash without a loss in value.

Mispricing

The occurrence when the market price of an asset does not accurately reflect its intrinsic value, possibly due to information asymmetry, market inefficiency, or other factors.

Extraneous Risk

External risk beyond the control of investors or the company, not directly related to the investment's or company's specific activities.