Question : 61) Refer to Table 15-2. Suppose the interest rate 4%, : 1384301

61) Refer to Table 15-2. Suppose the interest rate is 4%, the purchase price of a sewing machine is $3000, and the firm is holding its optimal capital stock. If the interest falls to 2%, how will this firm adjust its capital stock?

A) it will reduce its number of machines from 12 to 11

B) it will reduce its number of machines from 14 to 13

C) it will not change its capital stock

D) it will increase its number of machines from 11 to 12

E) it will increase its number of machines from 13 to 14

62) Refer to Table 15-2. What principle will this firm follow to determine the optimal number of sewing machines to own and operate?

A) the marginal revenue products of all the machines should be equal

B) the present value of the future MRPs on the last unit of capital is equal to (or greater than) its purchase price

C) the annual MRP on the last unit of capital should be equal to (or greater than) its purchase price

D) the marginal products of each machine should be equal

E) the present value of the future MRPs should be increasing over time

63) It is useful to think of physical capital in terms of a ________ variable, ________.

A) flow; because its usefulness lasts over a long period of time

B) flow; because it is usually put in place and maintained over a long period of time

C) stock; because any flow of investment adds to the current capital stock

D) stock; because most equipment is solidly built

E) stock; depending on the context

64) Consider a manufacturing firm that contemplates buying a lathe with an annual MRP of $1000 (beginning one year from now). Suppose the interest rate is 5% per year. If the lathe is obsolete after the fourth MRP is generated, the maximum the firm is prepared to pay now for the lathe is

A) $3019.52.

B) $3546.40.

C) $3723.24.

D) $3910.51.

E) $4000.

65) A technological improvement in the physical capital available to the firm has a similar impact on a firm’s desired capital stock as

A) an increase in the interest rate.

B) a decrease in capital’s MRP.

C) a reduction in the price of capital goods.

D) a decrease in the price of the firm’s product.

E) a shift to the left of the capital’s MRP curve.

66) Consider the market for commercial ovens as a factor of production in the commercial bread industry. Assume that all commercial ovens are identical, they have a lifespan of 10 years, and the purchase price is $12 000. The present value of the stream of MRPs from the last oven purchased by each commercial bakery is $16 000. We can expect that

A) profit-maximizing firms will reduce their capital stock of ovens until the PV of the stream of MRPs falls to $12 000.

B) investment demand by all firms will fall until the PV of the stream of MRPs falls to $12 000.

C) investment demand by all firms will rise until all firms have an identical capital stock.

D) the purchase price of commercial ovens will fall until the price is equated with the PV of the stream of MRPs.

E) investment demand by all firms will increase and there will be a tendency for the price of commercial ovens to rise.

67) The firm’s investment demand curve shows

A) the difference between nominal and real interest rates.

B) the equilibrium interest rate.

C) how the firm’s desired stock of capital varies with changes in MRP.

D) how the firm’s MRP changes with advances in technology.

E) how the firm’s desired purchases of new capital vary with the interest rate.

68) Consider the economy’s downward-sloping demand for investment curve. A decrease in the interest rate causes ________; an improvement in the marginal productivity of capital causes ________.

A) a shift of the curve to the right; a shift of the curve further to the right

B) a movement downward along the curve; a shift of the curve to the left

C) a movement downward along the curve; a shift of the curve to the right

D) a shift of the curve to the left; a movement downward along the curve

E) a movement upward along the curve; a shift of the curve to the right

69) Choose the best reason for a rightward shift in the economy’s investment demand curve.

A) diminishing marginal returns to capital

B) changes in technology that improve the productivity of capital

C) a decrease in the interest rate

D) an increase in the interest rate

E) none of the above would shift the investment demand curve

70) The economy’s supply curve for saving (financial capital) shows

A) the difference between nominal and real interest rates.

B) the relationship between the flow of saving and the stock of financial assets.

C) how the economy’s desired flow of saving varies with changes in the interest rate.

D) how the economy’s flow of saving changes with advances in technology.

E) how the economy’s stock of capital varies with the interest rate.