# E the normal return on investment equals the implicit

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( e ) The normal return on investment equals the implicit costs of the entrepreneur (i.e. her salary foregone) of \$25,000. Spreadsheet problem (a) & (b) See attached Excel file. (c) The covariance is negative, so it indicates that the finishing time and the age change inversely. Froeb and McCann’s chapter 3: a. Individual problems: 3-2 This is an example of the hidden-cost fallacy. The interest payments on the loan are \$7,200 per year, so owning may appear to be a good deal, but you must also compute the opportunity cost of the down payment. You forego \$3,000 in expected return each year if you sell the stock. So the cost of owning is \$10,200 (=\$7,200 + \$3,000) per year. Rent instead.

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3-3 The answer requires you to identify the hidden costs of transporting the steel. Both C and D are correct. Answer A is incorrect because you would have to buy steel in the future for your own production needs, so if you sold now and repurchased in the future would never recover the \$20 shipping cost. Answer B is incorrect for the same reason. Salvatore’s chapter 3: a. Discussion Questions: 9 When sales or total revenue is at maximum, marginal revenue is zero (see figure 3-4). Since marginal cost is usually positive, marginal cost exceeds marginal revenue and the firm produces too much output. Therefore, the marketing program of the firm should be scaled down until the marginal revenue of the program equals its marginal cost.
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