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2 Nov 2020

6. When a firm has a record of at least earning significant revenues, and better still of earning profits, the firm can make a credible promise to pay interest, and so it becomes possible for the firm to borrow money. There are two main methods of borrowings:

a. banks

b. bonds

c. all of these

Booster class

Microeconomics

Skill

Understanding How Businesses Raise Financial Capital

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Raushan RajLv8

2 Nov 2020

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Related questions

Consider a manufacturing firm in a labor market that is perfectly competitive. There are two kinds of workers: productive workers whose marginal revenue product is $48,000 per year, and lazy workers whose marginal revenue product is $40,000 per year. It is difficult for the firm to differentiate between productive and lazy workers.

A local college offers a new yearlong astronomy course. Although the cost of tuition is the same for both types of workers, the psychic cost of having to work hard and get a passing grade is lower for productive workers because they can learn more quickly than lazy workers. Therefore, the cost of taking the class (including the cost of tuition as well as the psychic cost) is $5,000 per year for a productive worker and $10,000 per year for a lazy worker. Because astronomy has little relevance to manufacturing, taking the class does not increase or decrease a worker's productivity.

The firm uses the class as a way to differentiate between productive and lazy workers. That is, the firm would like to use the class as a job market signal. Workers enrolled in the class that year (with a passing grade) will earn $48,000 and workers Not enrolled that year will earn $40,000.

A. For productive workers, the NET Benefit (increase in earning minus cost) of taking the class this year is (-$5,000, -$3,000, -$2,000, $2,000, $3,000, $6,000, $8,000). For lazy workers, the NET Benefit of taking the class this year is (-$10,000, -$6,000, -$3,000, -$2,000, $2,000, $3,000, $8,000).

B. Which is True? (No one will take the class, so it can't be used as a credible signal for the firm, Only productive workers will take the class, so it becomes a credible signal for the firm, Both productive and lazy workers will take the class, so it is not a credible signal for the firm, Only lazy workers will take the class, so the firm cannot use the class as a credible signal).

C. Suppose that the local college learns that workers taking the astronomy class earn $8,000 more each year. As a result, the college increases the tuition of the class by $4,000. This increases the cost of taking the class by $4,000 for all workers. Under these new conditions, the Net Benefit of taking the class is (-$9,000, -$5,000, -$4,000, -$1,000, $1,000, $3,000, $8,000) for productive workers, and (-$10,000, -$6,000, -$4,000, -$2,000, $1,000, $6,000, $8,000) for lazy workers.

D. After the tuition increase, which is true? (Both productive and lazy workers will take the class, so it is not a credible signal for the firm, Only productive workers will take the class, so it is a credible signal for the firm, No one will take the class, so it can't be used as a credible signal for the firm, Only lazy workers will take the class, so the firm cannot use the class as a credible signal).

apricotcamel269

8. Two methods of reducing pollution

Suppose the government wants to reduce the total pollution emitted by three firms in its area. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. The government wants to reduce total pollution in the area to 6 units, In order to do so,it can choose between the following two methods:


1.	The government sets pollution standards (Method 1)
2.	The government allocates tradable pollution permits. (Method 2)

compare the two methods to determine the least-cost way of achieving the desired pollution quantity.

Eliminating pollution can be more difficult(and thus more costly) for some kinds of firms than for others. The following table shows the cost of elimanating each unit of pollution for each of the three firms.


	Firm X	Firm y	Firm z

Cost of elimination the first unit of pollution	$650	$55	$90
Cost of elimination the 2nd unit of pollution	$800	$70	$125
Cost of elimination the 3rd unit of pollution	$1,500	$110	$180
Cost of elimination the 4th unit of pollution	$10,500	$550	$1080

Under Method 1, the government sets pollution standards so that each firm must reduce its polluton by 2 units. Fill in the following table with the total cost to each firm of reducing its pollution by this amount

Total cost of eliminating 2 units of pollution	FIRM X	FIRM Y	FIRM Z

Adding up the costs to the three firms, you can see that the total cost of eliminating 6 units of pollution through regulatory standard is _________
$1645
$1790
$2,785
$1,490
Now suppose the government uses method 2 to reduce pollution in the area from 12 units to 6 units by issuing two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1 unit of pollution, but firms are also free to trade pollution permits with one another. For example, if firm X were to buy a permit form firm Y, firm X would end up with three permits and would need to reduce its pollution by only1 unit, whereas firmY would end up with only one permit and would have to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless

Because of its high pollution-reduction costs, firm X might be better off buying permits form firm Y and firm Z so that it doesn't have to reduce its own pollution emissions. At which of the following prices are both firm y and firmz willing to sell one of their permits to firm X? check all that apply

- $390
-$155
-$415
-$70
Again , suppose that you are considering the method of pollution reduction involving trabable permits. Suppose the owners of the three firms get together and agree on a trading price of $420 per permit. Fill in the following table with the action taken by each firm, the amount each firm will pollute, and the amount it costs each firm to reduce pollution to the necessary level. (Hint: do not include the prices of permits in the cost of reducing pollution)

	FIRM X	FIRM Y	FIRM Z
Initial pollution permit allocation	2 units	2 units	2 ;units
action
Final pollution amount

Given this senario, rthe total cost of eliminating 6 units of pollution using a tradable permit is _______
$0
$1,470
$1,100
$630
On the basis of this example, you can conclude that eliminating pollution is ________ costly to society when
more
less
the government allocates pollution permits that can be bought and sold than when it directs each firm to eliminate a certain amount of pollution.

Blank under method one

FIRM X	FIRM Y	FIRM Z
	$800	$125	$305
choose the right answer	$2,300	$70	$215
	$2,150	$165	$125
	$1450	$180	$270

Blanks under tradable permits

	FIRM X	FIRM Y	FIRM Z
Initial pollution permit allocation	2 units	2 units	2 ;units
action	buy 1 permit sell 2 permit don't buy/sell sell 1 permit buy 2 permit	buy 1 permit sell 2 permit don't buy/sell sell 1 permit buy 2 permit	buy 1 permit sell 2 permit don't buy/sell sell 1 permit buy 2 permit
Final pollution amount	1 unit 2 units 3 units 4 units	1 unit 2 units 3 units 4 units	1 unit 2 units 3 units 4 units
Cost of polluton reduction	$650 $0 $1,450 $800	$0 $70 $125 $235	$125 $215 $395 $0

In a perfectly competitive market, in the long run, the marginal cost of a firm becomes equal to its minimum average total cost.

A) True
B) False

Generally, The price a firm charges for its product is equal to its total revenue divided by the number of units sold.

A) True
B) False

In a perfectly competitive firm to maximize profit a firm must make sure that the price it charges does not exceed its marginal cost.

A) True
B) False

Firms in a competitive market can never make economic profits while they may make biasness (accounting) profits.

A) True
B) False

When a perfectly competitive firm is making a positive economic profit its average revenue must be greater than its average total cost.

A) True
B) False

To maximize its profit a firm always produces at the quantity level where it can charge the highest price and earn the greatest revenue; this strategy is consistent with setting is MC equal to price.

A) True
B) False

When a firm in a competitive market is making a positive economic profit its business profit may be positive or negative.

A) True
B) False

In a perfectly competitive market new entries could result in increases in input prices thus making production costs go up.

A) True
B) False

In a perfectly competitive market, in the long run, each firm produces the maximum amount it can produce and charges the lowest price possible. That is why we consider competitive markets efficient.

A) True
B) False

10.

A monopolist always under-produces and charges a price higher than its MC.

A) True
B) False

11.

As the only supplier in the market a monopolist can charge any price it wishes and buyers have no choice but to pay.

A) True
B) False

12.

The marginal revenue is the additional revenue generated by the last unit of labor hired.

A) True
B) False

13.

The price a monopolist charges may or may not be above its average cost but it is always above its MR.

A) True
B) False

14.

When demand curve is a downward-sloping straight line (linear) marginal revenue will be greater than MC at all output leveles.

A) True
B) False

15.

By setting its MR equal to its MC a monopolist determines the output that would maximize its profit.

A) True
B) False

16.

In the long run each competitive firm would produce at the quantity level where its MC is equal to its MR as well as its ATC.

A) True
B) False

17.

A monopoly always makes an economic profit.

A) True
B) False

18.

When a monopoly's ATC is equal to the price it charges it is making normal economic profits.

A) True
B) False

19.

When a monopoly is making a zero economic profit still its MR>ATC.

A) True
B) False

20.

An increase in demand would enable a monopolist to raise its price while reducing its output.

A) True
B) False

21.

The market supply curve in an increasing-cost industry is:

A) a. upward sloping
B) b. downward sloping
C) c. vertical
D) d. horizontal
E) e. none of the above

22.

The total producer surplus is measured by:

A) a. the area between supply and demand curves.
B) b. the difference between the price the consumer is willing and able to pay and the price suppliers wish to charge to maximize their profits.
C) c. the area between the price consumers actually pay and the demand curve.
D) d. the area between the equilibrium market price and the supply curve.
E) e. the consumer willingness to pay as reflected by the equilibrium market price.

23.

. Economists measure economic (social) welfare by the

A) a. net consumer surplus
B) b. sum of consumer and producer surplus
C) c. sum of the net profits made by the industry's competitive firms
D) d. price consumers are willing to pay for one additional unit of a good
E) e. difference between the total consumer surplus and total producer surplus