A Firm Has Discovered a New Kind of Nonfattening, Non-Habit-Forming

question 58

Multiple Choice

A firm has discovered a new kind of nonfattening, non-habit-forming dessert called zwiffle.It doesn't taste very good, but some people like it and it can be produced from old newspapers at zero marginal cost.Before any zwiffle could be produced, the firm would have to spend a fixed cost of $F.Demand for zwiffle is given by the equation q =12 - p.The firm has a patent on zwiffle, so it can have a monopoly in this market.

• A)The firm will produce zwiffle only if F is less than or equal to 36.
• B)The firm will not produce zwiffle if F > 12.
• C)The firm will produce 12 units of zwiffle.
• D)The firm will produce 9 units of zwiffle.
• E)None of the above.

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Definitions:

Replacement Projects

Investments undertaken to replace old or obsolete assets with new ones, aiming to maintain or enhance efficiency, productivity, or the competitive position of a business.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not factor into the decision-making process for future investments.

Internal Rate of Return (IRR)

A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.

Net Present Value (NPV)

A method used in capital budgeting to assess the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.