If Every Firm Knows Its Marginal Cost but a Central

question 68

Multiple Choice

If every firm knows its marginal cost but a central planner cannot know every firm's marginal cost, then:

• A) central planners will outperform competitive markets.
• B) competitive markets will outperform central planners.
• C) central planners and competitive markets will perform equally well.
• D) it is impossible to say whether central planners or competitive markets will perform better.

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Definitions:

Time Value

The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.

Payback Period

The time it takes for an investment to generate income or revenue equal to its cost, used to assess the feasibility or risk of an investment.

Cash Flows

The net amount of cash being transferred into and out of a business.

Internal Rate

The interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero, used in capital budgeting to measure and compare the profitability of investments.