dolution

 

1. CopyCentral provides commercial photocopying services. This profit-maximizing firm purchases copy machines that each have a lifespan of three years, after which they have no value. A machine generates MRPs of $9000 per year for each of those three years.At each of the following annual interest rates, determine themaximum price this firm should be willing to pay for a copy machine.

 

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a. 2 percent

 

b. 3 percent

 

c. 6 percent

 

d. 10 percent

 

1. For each interest rate below, compute the opportunity cost (in terms of forgone spending next year) to a household of spending $1000 this year:

 

a. The interest rate is 5 percent per year.

 

b. The interest rate is 7 percent per year.

 

c. The interest rate is 9 percent per year.

 

d. Explain why, other things being equal, households save more when the interest rate is higher.

 

 
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