Use of the Marginal Cost of Capital

question 77

Multiple Choice

Use of the marginal cost of capital

• A) acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth.
• B) recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.
• C) acknowledges that when retained earnings are used up as a source of equity, the cost of capital rises as new common stock is sold to support more growth and recognizes that the return from the last dollar of funds generated should be greater than or equal to the cost of the last dollar of funds raised.
• D) None of these options are correct.

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Definitions:

Medical Care

The diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans through professional services.

Constant-cost Industry

An industry where input prices do not change as industry output changes, resulting in a horizontal supply curve.

LRMC

Long-Run Marginal Cost, which is the additional cost of producing one more unit of output when all inputs, including capital, are variable.

LRAC

Long-Run Average Cost, a curve that shows the lowest possible average cost of production, allowing all factors of production to vary.