w firms enter a monopolistically mar product variety in the market? a. Profits o
ID: 1129900 • Letter: W
Question
w firms enter a monopolistically mar product variety in the market? a. Profits of existing firms rise and Profits of existing firms and c. Profits of existing firms rise and product variety in the markrket decreases. d Peitive market, what happens to profits of existing firms and Profits of existing firms decline and product vanety in the decline and ct variety in the market decreases A firm is considering buying one of two technologies. Technoi echnology 37. mrariety in the market increases. roduct of capital of $8, 300 per year and a lifespan of revenue product of capital of $10, 800 a lifespan. annually. Each technology w h s an estimated manated marginao% a. Technology B; it has the highest present value. per year and a lifespan of 3 years. The interest rate is constant at 6% years uid cost the firm $29, 000. Which technology should the firm purchase? c. Technology A; it has the highest present value Technology B; it has a higher marginal revenue product than technology d. Bake My Day", the total cost of producing 20 cakes is $500. The marginal cost of producing the 21 st cake is $32. Which of the following is correct? a. The total cost of 21 cakes is $568. A. The average variable cost of 21 cakes is $23 ly Day is experiencing diminishing marginal productivity. with a new marginal rate of substitution? a. the substitution effect ge total cost of 21 cakes is $25.33 t is due to a price change that moves the consumer along the same indifference curve to a budget effect pointExplanation / Answer
Ans:
Option B
The firm would purchase neither technology A or B.
Computation of present value of each technology
Present value = cash flow(CF) * discounting factor(DF)
Discounting factor(DF) = 1/(1+r)^n
Technology A = $29000 * 1/(1+0.06)^0 + $8,300 * sum of discounting factor for year 1 to year 4
= -$29,000 * 1 + $8,300 * 3.4651
= -$29,000 + $28,760.33
= -$239.67
Technology B = $29000 * 1/(1+0.06)^0 + $ * sum of discounting factor for year 1 to year 3
= -$29,000 * 1 + $10,800 * $2.673
= -$29,000 + $28,868.4
= -$131.6
Conclusion :
The firm would purchase neither technology A or B. This is because the present value of both the technologies is negative.
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