A Firm Invests in a New Machine That Costs $2,000

question 34

Multiple Choice

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year. The current real rate of interest is 8 percent. The firm should:

• A) Undertake the investment because the expected rate of return of 12 percent is greater than the real rate of interest
• B) Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest
• C) Undertake the investment because the expected rate of return of 9 percent is greater than the real rate of interest
• D) Not undertake the investment because the expected rate of return of 7 percent is less than the real rate of interest

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Definitions:

Extrinsic Motivation

A type of motivation driven by external rewards outside the individual, such as money, fame, grades, or praise.

Instrumental Conditioning

A learning process in which behavior is modified by the reinforcing or inhibiting effects of the resulting consequences.

Dual Income

Refers to a household in which there are two sources of income, typically from two working adults.

Divorce Rates

The statistical measure that represents the number of divorces occurring in a population during a given time period, usually per year, per 1,000 residents.