Suppose That a Machine Costs $10,000 in Constant Dollars and the Real

question 43

Multiple Choice

Suppose that a machine costs $10,000 in constant dollars and the real rate of interest is 12 percent.If the machine is expected to increase in price by 2 percent and the rate of depreciation is 5 percent,then the user cost of capital for that machine over one year is equal to ________.

• A)$150
• B)$1,500
• C)$10,000
• D)$102,500

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Definitions:

Administrative Expenses

Costs related to the general operation of a business that are not directly linked to production or sales, such as salaries of office staff and utilities.

Cash Disbursements

The payments a company makes during a period, including expenses, debt payments, and purchase of assets.

Manufacturing Overhead

Indirect factory-related costs that are incurred when producing a product, including costs associated with maintenance, utilities, and quality control.

Fixed Selling Expenses

Fixed selling expenses are those costs associated with selling a product that do not change with the level of production or sales, such as salary of sales staff and rent for office space.