The firm's optimal liquid asset balance occurs where the sum of the opportunity holding and ____ costs are minimized.

Question

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The firm's optimal liquid asset balance occurs where the sum of the opportunity holding costs and shortage costs are minimized. Holding costs are associated with holding liquid assets instead of investing them for higher returns, while shortage costs arise from not having enough liquid assets to meet immediate demands, leading to potential missed opportunities or the need for emergency financing.

The Firm's Optimal Liquid Asset Balance Occurs Where the Sum