MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 8, Problem 2TY
To determine
To describe: The act which can be defined as Investment from an Economist point of view.
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The owner of Tommy's Technicians has found that his shop is losing money and he is in jeopardy of going out of business. Sales have remained constant for quite some time and now he is looking at ways to cut expenses to stay in business. Which of the following expenses is his best choice to try to immediately reduce and save him meaningful dollars so he can remain in business? (Hint: First consider which ones he has ultimate control over?)
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Suppose you are considering whether to purchase a house off of Lake Erie for $400,000. You expect the total costs of maintaining the property (utilities, repairs, etc.) to equal $15,000/year, and that you would be able to generate $35,000/year in revenue if you were to put the house on the short term rental market.
Suppose you are deciding between purchasing the home or whether to invest $400,000 in an interest-bearing account. If your objective is to maximize your own net income, what would the interest rate have to equal for you to invest in the interest-bearing account?
Can you help me just figure out how to set this up? I get that we need the investment to equal 20k but not sure on how to figure out interest rates.
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