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Microeconomics Question:Profit maximizing businesses will buy more new machinery only if?
a) interest rate increases
b) labor costs are low and expected to fall
c) the expected rate of return is greater than the interest rate
d) the present value of the new machinery is lower than its purchase price
2 Answers
- Anonymous2 years ago
d
- Next timeLv 62 years ago
it’s marginal costs equally to or less than its average revenues.
Interest rates being nominal or reducing will encourage new acquisitions as long as revenues stay ahead of increasing marginal costs.
Clear as mud. Don’t spend if your revenues isn’t increasing to cover additional operating costs. Accelerated depreciation could beef up capital recovery but that catches up quickly when assets are fully depreciated costs will decrease and signal a reduction in profit over time.