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MICROECONOMICS 2106

EXAM 3

Chapters 26-28

Norman Hollingsworth

Version 200602-VE1

Answer the following questions completely on this and additional sheets of paper provided by the instructor.

1-Technological innovation doesn’t yield a return on investment for a very long time.  How does a firm determine how much money it should invest into such long-term research and development projects?  Is there a possible timing problem here?  Explain.

2-How does a firm determine the amount of money to invest? How do interest rates impact upon this decision?  Be sure to include the reasons why some rates are higher and/or lower than others.  Does the government have a role in setting interest rates?

3-How does an entrepreneur determine the optimum number of employees to hire?  How further do they determine the optimum mix of people and machines to employ?  Be complete but do not use examples.

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