-In Exhibit Q-4, if the price of a bicycle helmet is $10 and the interest rate is 20 percent, how much in loanable funds should the firm demand?

Question

Quizplus · Accepted Answer

Given the price of a bicycle helmet is $10 and the interest rate is 20 percent, the firm would demand $5,000 in loanable funds if this amount allows it to undertake projects or operations (such as producing bicycle helmets) that it expects will generate a return higher than the 20 percent interest rate. Without specific details from Exhibit Q-4, the correct answer hinges on understanding the relationship between the cost of borrowing (interest rate) and the amount a firm is willing to borrow to finance its investments, assuming those investments yield returns greater than the borrowing cost.

-In Exhibit Q-4, If the Price of a Bicycle Helmet