A firm's decision to invest in a project is based on the O a

Economics Dec 28, 2020

A firm's decision to invest in a project is based on the O a. real interest rate and expected total revenue. O b. real interest rate and the expected profit. O c. nominal interest rate and the expected profit. O d. nominal interest rate and expected total revenue.

Expert Solution

Answer) b)real interest rate and expected profits

Firm's Investment decision is based on real interest rate. Real interest rate= Nominal Interest rate- Expected inflation, expected Inflation is also taken into consideration along with nominal interest rate because with a change in inflation the purchasing power also changes.

Investment decisions are also based on expected profitability from Investment . Profit=Revenue-Cost ,so both revenue as well as costs are taken into consideration before making an investment decision .

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