Suppose a Dairy Farmer Is Considering the Purchase of an Additional

question 53

Multiple Choice

Suppose a dairy farmer is considering the purchase of an additional milking machine at a price of $4000.She expects the discounted MRP of the machine in Year 1 to be $1700,in Year 2 to be $1500 and in Year 3 to be $1200,after which the machine has no value.The farmer should

• A)buy the machine because its present value is $400 more than its purchase price.
• B)buy the machine because its marginal revenue is $400 more than its marginal cost.
• C)be indifferent about the purchase because its present value is approximately equal to its purchase price.
• D)not buy the machine because its marginal revenue is $400 less than its marginal cost.
• E)not buy the machine because its present value is $400 less than its purchase price.

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