Assume That a Firm Is Considering Building a Factory That

question 81

Multiple Choice

Assume that a firm is considering building a factory that will cost $5 million. It believes that it can get a profit from this factory of $600,000 per year for many years. The interest rate at which the firm can borrow money is 15 percent. After evaluating whether it should build the factory, the firm decides that it should:

• A) not build because the rate of return on the factory is only 6 percent.
• B) not build because the rate of return on the factory is only 12 percent.
• C) build because the rate of return on the factory is 30 percent.
• D) build because the rate of return on the factory is 35 percent.

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Definitions:

Consumer Tastes

Consumer Tastes denote the preferences and desires that influence the buying behavior of consumers, often affected by cultural, social, and personal factors.

Capital Goods

Long-lasting goods that are used in the production of other goods or services, such as machinery, equipment, and buildings.

Production Possibility Frontier

A graphical representation depicting the maximum output possibilities for two goods, given a set of inputs, highlighting the trade-offs in production choices.

Efficiency

The ability to achieve a desired outcome or output with the least waste of time, effort, or resources.