A Firm Produces a Good and Generates $5 Million in Receipts

question 264

Multiple Choice

A firm produces a good and generates $5 million in receipts. Wages are $1 million, rent is $500,000, and interest payments are $1 million. Then

• A) profits are $500,000, the cost of production is $4.5 million, and households receive income equal to $4.5 million.
• B) profits are $1.5 million, the cost of production is $5 million, and households receive income equal to $4.5 million.
• C) profits are $1.5 million, the cost of production is $5 million, and households receive income equal to $5 million.
• D) profits are $500,000, the cost of production is $5 million, and households receive income equal to $4.5 million.

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Definitions:

Capital Expenditure

Funds used by an organization to acquire or upgrade physical assets to improve its long-term capacity and efficiency.

Net Cash Inflow

The amount of cash that flows into a company subtracting the cash that flows out during a specific time period.

Compensating Balance

A minimum account balance that a borrower is required to maintain with a lender, often used to offset the cost of a loan.

Loan Agreement

A contract between a borrower and a lender outlining the terms and conditions of a loan.