Murray's Can Borrow Money at a Fixed Rate of 10

question 10

Multiple Choice

Murray's can borrow money at a fixed rate of 10.5 percent or a variable rate set at prime plus 2.25 percent.Fred's can borrow money at a variable rate of prime plus 1.5 percent or a fixed rate of 12 percent.Murray's prefers a variable rate and Fred's prefers a fixed rate.Given this information,which one of the following statements is correct?

• A)After swapping interest rates with Fred's, Murray's may be able to pay prime plus 2 percent.
• B)Both companies can profit in a swap which will allow Murray's to pay a variable rate of prime plus one percent.
• C)Fred's will end up with a fixed rate of 10 percent.
• D)Fred's has the best chance of profiting if it does an interest rate swap with Murray's.
• E)There are no terms under which Murray's and Fred's can swap interest rates.

Understand the behavior of firms in perfectly competitive markets, including how prices and outputs are determined.

Analyze the relationship between total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) and their implications for profit maximization.

Interpret demand curves and how they affect the pricing and output decisions of perfectly competitive firms.

Calculate profit maximizing levels of output using marginal analysis.

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Definitions:

Foot-In-The-Door

A psychological technique that involves getting a person to agree to a large request by first setting them up by agreeing to a modest request.

Fundamental Attribution Error

The tendency to overestimate personality or dispositional factors and underestimate situational influences when explaining the behavior of others.

Slacking Off

The act of reducing effort or avoiding work altogether.

Cognitive Dissonance

The psychological distress felt when an individual has two or more opposing beliefs, ideas, or values at the same moment.