A Manager Invests $400,000 in a Technology to Reduce Overall

question 26

Multiple Choice

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.Ceteris peribus,if the firm continues its production in the same economic environment,the firms accounting profits should

• A)increase
• B)decrease
• C)stay the same
• D)does not affect profits

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Definitions:

Out-of-the-money

A term used in options trading referring to options that would not make a profit if exercised immediately because their strike price is unfavorable compared to the current market price.

In-the-money

Describes an option with intrinsic value; for a call option, when the underlying asset's price is above the strike price; for a put option, when it's below.

Put Option

A financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price within a certain timeframe.

Exercise Price

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