A Company Is Planning to Purchase a Machine That Will

question 1

True/False

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate cash flows per year of $6,000. The accounting rate of return for the machine is 16.7%.

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Definitions:

Productive Inefficiency

A situation where resources are not used in the most cost-effective way, resulting in a higher production cost than necessary.

Allocative Inefficiency

A situation where resources are not allocated efficiently, leading to a mismatch between what is produced and what consumers actually demand, causing wastage and loss of potential welfare.

Monopolistically Competitive

Refers to a market structure where many firms sell products or services that are similar but not perfect substitutes, with some ability to set prices.

Excess Capacity

The situation in which a firm or economy can produce more goods than are currently being produced, due to underused resources.