A Group of 9 Consumers Are Trying to Decide Whether

question 14

Multiple Choice

A group of 9 consumers are trying to decide whether to connect to a new communications network.Consumer 1 is of type 1, consumer 2 of type 2, consumer 3 of type 3, and so on.Each consumer's willingness to pay to belong to the network is proportional to the number of consumers who belong.Where k is the number of consumers who belong, the willingness to pay of a type n consumer is equal to k times n.What is the highest price at which 7 consumers could all connect to the network and either make a profit or at least break even?

• A)$23
• B)$26
• C)$18
• D)$19
• E)$21

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Definitions:

Non-Interest-Bearing Note

A type of debt instrument which does not accrue interest, repaid at its face value at maturity.

U.S. Dollar Equivalent

The value of a foreign currency transaction converted into U.S. dollars at the current exchange rate.

Forward Contract

A financial agreement to buy or sell a specific asset at a predetermined price at a set time in the future.

Fair Value Hedge

A financial strategy used to offset the risk of changes in the fair value of a recognized asset or liability or an unrecognized firm commitment.