Question 1

Since the last recession interest rates have been very low. Also it is generally known that we are close to major breakthroughs in solar energy and battery storage technology. How would these two factors impact the price of oil today?

Accepted Answer

The answer of Since the last recession interest rates have...

Question 2

Explain in a paragraph why the quantity demanded for nonrenewable resources will be zero when the supply runs out.

Accepted Answer

The answer of Explain in a paragraph why the quantity...

Question 3

Suppose Chase Bank owns a truck that it leases to Ryder Inc. The truck's value is $100,000 and it is expected to deteriorate at a rate of 5 percent per year. If the real interest rate is 2 percent, then Chase's total costs of owning the truck are

Accepted Answer

Chase's total costs of owning the truck include both the depreciation cost and the opportunity cost of the capital tied up in the truck. The depreciation cost is 5% of $100,000, which is $5,000. The opportunity cost, given the real interest rate of 2%, is 2% of $100,000, which is $2,000. Adding these together gives a total cost of $7,000.

Question 4

Consider a perpetual bond that pays $150/yr to its owner. What would be the price of the consol if the interest rate is 2 percent?

Accepted Answer

A perpetual bond, also known as a consol, is a bond that pays a fixed amount of interest per year and has no maturity date. The price of a consol can be calculated by dividing the annual interest payment by the interest rate.

In this case, the annual interest payment is $150 and the interest rate is 2% or 0.02 in decimal form. Therefore, the price of the consol would be:

Price = $150 / 0.02 = $7,500

So, the correct answer is A) $7,500.

Question 5

You are operating a heavy equipment leasing and rental company. Your consultant tells you to focus you marketing strategy on new startup companies rather than thriving companies that are remodeling and seeking new equipment. Why might this suggestion be a good one given our tax code?

Accepted Answer

The answer of You are operating a heavy equipment leasing...

Question 6

Suppose you are deciding how much oil to pump from your oil well in the next ten years. If you know oil would sell for $5 per gallon in ten years and the real interest rate is about 4%, the present value of the opportunity cost of selling the oil today would be about

Accepted Answer

The present value of the opportunity cost of selling the oil today can be calculated using the formula:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the real interest rate, and n is the number of years.

In this case, the future value is the selling price of oil in ten years, which is $5 per gallon. The real interest rate is given to be 4%. Therefore, the present value can be calculated as:
PV = $5 / (1 + 0.04)^10
PV = $2.50

So, the present value of the opportunity cost of selling the oil today is $2.50 per gallon. However, the question is asking for the value in ten years' time, so we need to discount this value by 10 years:
PV = $2.50 / (1 + 0.04)^10
PV = $3.38

Therefore, the best choice is A) $3.38, which represents the present value of the opportunity cost of selling the oil today in ten years' time.

Question 7

What is the actual value of an alleged million-dollar lottery jackpot, paid at the rate of $100,000 at the end of each year for 10 years, assuming that the interest rate remains are 5% over that period?
Check your calculations against these values for the 10 payments

Accepted Answer

The answer of What is the actual value of an...

Question 8

When a CEO gets 20 million dollars a year in salary is any of that considered rent?

Accepted Answer

Economic rent refers to income received due to scarce resources or abilities, which are not easily replicable or replaceable. While the CEO may receive a high salary, it is generally not considered economic rent because it is not solely due to rare abilities or resources. Additionally, the CEO's salary is negotiated based on market expectations and the company's performance, not solely on the CEO's unique abilities. Therefore, it is not considered rent under most economic definitions.

Question 9

Peak load pricing helps firms gain profit because

Accepted Answer

Peak load pricing allows firms to charge higher prices during periods of high demand, which can help them manage demand and reduce the need for excess capacity, thus allowing them to operate with a smaller capital base.

Question 10

Peak load pricing

Accepted Answer

Peak load pricing is designed to move consumers up along their demand curve by charging higher prices during peak demand times, thereby reducing quantity demanded.

Question 11

You have a mortgage that has a nominal interest rate of 7%. The inflation rate is 3.5%. Your real interest rate is _________.

Accepted Answer

The answer of You have a mortgage that has a...

Question 12

Which of the following is considered financial capital?

Accepted Answer

All of the choices—funds held in savings accounts, stocks and bonds sold to fund operations, and profit that accumulates in a checking account—are examples of financial capital.

Question 13

A computer you are considering for your business would add $4,000 per year to your profit. It would cost $400 a year to buy a complete maintenance contract so that you would never have repair and upkeep expense. The obsolescence depreciation is 25% a year. The going market interest rate is 5%. Assume all costs and revenue occur at the end of the year. If the machine cost $12,000 to purchase, should you buy it?

Accepted Answer

The answer of A computer you are considering for your...

Question 14

A for-profit company that buys real capital and leases it to a non-profit company can

Accepted Answer

By leasing the capital, the for-profit company can depreciate it and lower its tax liability, which would not be possible if it simply sold the capital to the non-profit company. However, there is no indication that the for-profit company would charge a higher lease rate or price than market value, and whether or not the arrangement adds a net gain to the economy is subjective and dependent on various factors.

Question 15

Risk premium is

Accepted Answer

Risk premium is the additional return that an investor demands in order to invest in a risky asset compared to a risk-free asset. It is a payment differential that compensates the investor for bearing the risk. It is calculated as the difference between the expected return on a risky asset and the risk-free rate.

Question 16

A computer you are considering for your business would add $4,000 per year to your profit. It would cost $400 a year to buy a complete maintenance contract so that you would never have repair and upkeep expense. The obsolescence depreciation is 25% a year. The going market interest rate is 5%. Assume all costs and revenue occur at the end of the year. If the going interest rate went up to 10%, how much would you be willing to pay for the machine?

Accepted Answer

The answer of A computer you are considering for your...

Question 17

A computer you are considering for your business would add $4,000 per year to your profit. It would cost $400 a year to buy a complete maintenance contract so that you would never have repair and upkeep expense. The obsolescence depreciation is 25% a year. The going market interest rate is 5%. Assume all costs and revenue occur at the end of the year. What is the present value of the income stream from the machine?

Accepted Answer

The answer of A computer you are considering for your...

Question 18

Many minor league ballplayers get called up to play in the majors and then get sent back down again to the minors. Jim makes $26,000 in the minors and then when he gets called up he makes $125,000, though he never plays and is an unknown name to the fans. It is most likely true that

Accepted Answer

Economic rent is the difference between the amount a worker is paid and the amount they would need to be paid to do the job. In this case, Jim is being paid much more in the majors than his marginal product would suggest, indicating that some of his salary is economic rent.

Question 19

A computer you are considering for your business would add $4,000 per year to your profit. It would cost $400 a year to buy a complete maintenance contract so that you would never have repair and upkeep expense. The obsolescence depreciation is 25% a year. The going market interest rate is 5%. Assume all costs and revenue occur at the end of the year. What is the maximum you should be willing to pay for the machine?

Accepted Answer

The answer of A computer you are considering for your...

Question 20

Suppose you are deciding how much oil to pump from your oil well in the next two years. Other things equal, you will be more likely to pump more oil this year than next year if you expect

Accepted Answer

If the price of oil is expected to be higher this year than next year, it would be more profitable to pump more oil this year since you would receive a higher price for each unit of oil sold. This assumes that the cost of pumping the oil remains constant.

Quiz 15: Capital

Since the last recession interest rates have been very low. Also it is generally known that we are close to major breakthroughs in solar energy and battery storage technology. How would these two factors impact the price of oil today?

Explain in a paragraph why the quantity demanded for nonrenewable resources will be zero when the supply runs out.

Suppose Chase Bank owns a truck that it leases to Ryder Inc. The truck's value is $100,000 and it is expected to deteriorate at a rate of 5 percent per year. If the real interest rate is 2 percent, then Chase's total costs of owning the truck are

Consider a perpetual bond that pays $150/yr to its owner. What would be the price of the consol if the interest rate is 2 percent?

You are operating a heavy equipment leasing and rental company. Your consultant tells you to focus you marketing strategy on new startup companies rather than thriving companies that are remodeling and seeking new equipment. Why might this suggestion be a good one given our tax code?

Suppose you are deciding how much oil to pump from your oil well in the next ten years. If you know oil would sell for $5 per gallon in ten years and the real interest rate is about 4%, the present value of the opportunity cost of selling the oil today would be about

What is the actual value of an alleged million-dollar lottery jackpot, paid at the rate of $100,000 at the end of each year for 10 years, assuming that the interest rate remains are 5% over that period? Check your calculations against these values for the 10 payments

When a CEO gets 20 million dollars a year in salary is any of that considered rent?

Peak load pricing helps firms gain profit because

Peak load pricing

You have a mortgage that has a nominal interest rate of 7%. The inflation rate is 3.5%. Your real interest rate is _________.

Which of the following is considered financial capital?

A for-profit company that buys real capital and leases it to a non-profit company can

Risk premium is

Many minor league ballplayers get called up to play in the majors and then get sent back down again to the minors. Jim makes $26,000 in the minors and then when he gets called up he makes $125,000, though he never plays and is an unknown name to the fans. It is most likely true that

Suppose you are deciding how much oil to pump from your oil well in the next two years. Other things equal, you will be more likely to pump more oil this year than next year if you expect