Why Is the Marginal Revenue Product Curve of a Factor

question 65

Multiple Choice

Why is the marginal revenue product curve of a factor negatively sloped?

• A)Additional revenue generated from an additional unit of a factor remains constant as more resources are hired.
• B)Additional revenue generated from an additional unit of a factor declines as more resources are hired.
• C)Additional revenue generated from an additional unit of a factor usually becomes zero as more resources are hired.
• D)Additional revenue generated from an additional unit of a factor increases as more resources are hired.
• E)Additional revenue generated from an additional unit of a factor doubles every time new resources are hired.

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Definitions:

Internal Rate

Often referred to as the internal rate of return (IRR), it is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Payback Period

The time duration required for an investment to generate cash flows sufficient to recover the initial cost of the investment.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess the profitability of an investment.

Simple Rate

A basic form of interest calculation representing a percentage of the principal amount over a certain period of time.