Read No Evil (RNE) is a firm specializing in the destruction of sensitive documents. An industrial paper shredder costs $10,000. If bought, it would raise RNE's revenues by an additional $1,000 per year. The machine will last forever and never require maintenance. Which of the following statements is true?
A. RNE should buy the machine if the interest rate is greater than 10%.
B. RNE should not buy the machine because its marginal revenue is $1,000, while its marginal cost is $10,000.
C. RNE should buy the machine if the interest rate is less than 10%.
D. RNE should buy the machine, because it will last forever and since it generates an extra $1,000 per year.
The answer is C. If RNE invested the $10,000 at 10% interest, it would earn ...
This solution uses marginal analysis to determine whether Read No Evil should purchase an industrial paper shredder.