What Impact Will an Increase in Depreciation Have Upon a Firm

question 25

Multiple Choice

What impact will an increase in depreciation have upon a firm?

• A)decrease profit and decrease cash flow
• B)decrease profit and increase cash flow
• C)increase profit and decrease cash flow
• D)increase profit and increase cash flow

---

Definitions:

Output Effect

The change in total output resulting from adjusting production levels, typically in response to changes in market demand or cost of production.

Fixed Proportions

A production process where inputs must be used in specific proportions, and the ratio of inputs cannot be easily changed.

Substitution Effect

The change in consumption patterns due to a change in relative prices, causing consumers to substitute one good for another more price-friendly option.

Marginal Productivity

The extra output that is produced by using one more unit of a factor, keeping all other factors constant.