Eleven Consumers Are Trying to Decide Whether to Connect to a New

question 9

Multiple Choice

Eleven consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 is of type 2, consumer 3 is of type 3, and so on.Where k is the number of consumers connected to the network (including oneself) , a consumer of type n has a willingness to pay to belong to this network equal to k times n.What is the highest price at which 5 consumers could all connect to the network and either make a profit or at least break even?

• A)$49
• B)$30
• C)$42
• D)$28
• E)$35

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Definitions:

Discount Rate

The interest rate by which future cash flows are devalued to their present worth in a DCF analysis.

Cash Flows

represent the net amount of cash and cash-equivalents being transferred into and out of a business.

Zero-Interest Financing

Zero-Interest Financing is a loan or credit offer with a 0% interest rate for a set period, making purchases more affordable upfront but often requiring a good credit score.

APR

Annual Percentage Rate, which represents the annualized cost of credit including interest and fees, making it easier to compare loan products.