the yearly depreciation and maintenance costs for the machine.
the yearly interest costs associated with owning the machine.
the initial purchase price of the machine divided by the number of years the machine is expected to last.
the sum of the yearly depreciation, maintenance, and interest costs associated with owning the machine.
A fall in interest rates leads to
an increase in the rental rate on a machine.
a decrease in the rental rate on a machine.
no change in the rental rate on a machine.
a fall in the marginal productivity of capital.
An increase in the corporate profits tax will most likely lead to
a decrease in the rental rate of capital in the corporate sector.
no change in the rental rate of capital in the corporate sector.
no change in the rental rate of capital in the non-corporate sector.
an increase in the rental rate of capital in the corporate sector.
In a perfectly competitive market a firm’s rental rate for a machine (v) will be given by: v = P(r + d) where r is the prevailing rate of interest and d is the depreciation rate. In this formula P represents
the present market price of the machine.
the initial purchase price of the machine (assuming this differs from its present market price.
the price of the firm’s product.
the depreciated value of the machine.
Accelerated depreciation laws may increase firms’ investment in equipment because
machines will wear out more rapidly.
profits will be increased.
the rental rate on capital will be lowered.
the price of machines will fall.
If real extra costs do not change, the relative price of a finite resource would be expected to
fall over time.
remain constant over time.
rise at a rate given by the nominal rate of interest.
rise at a rate given by the real rate of interest.
A monopolist who owned the entire supply of a scarce resource would set a price
at about the competitive level.
lower than the competitive level.
higher than the competitive level but lower than what a monopoly producer of a non-scarce good would.
above that which would be chosen by a monopoly producer of a non-scarce good.
The difference in present value between a perpetuity that promised €1 per year starting today and one that promised €1 per year starting next year is
0.
€1.
€1/(1 + r).
€r/(1 + r).
A firm that wished to calculate the present value of its future nominal profits should use the ____ to do so.
real interest rate
nominal interest rate
nominal interest rate minus the expected inflation rate
real interest rate minus the expected inflation rate
The yield on a bond is that interest rate for which the present value of the interest and principal payments promised by the bond are