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11. (Optimal Investment) Look back at Exhibit 1 in this chap- ter. If the marginal resource cost rose to $24,000 what would be the optimal
11. (Optimal Investment) Look back at Exhibit 1 in this chap- ter. If the marginal resource cost rose to $24,000 what would be the optimal investment at a market interest rate of 10 percent? If the interest rate then rose to 16.6 percent, what would be the optimal level of investment? EXHIBIT Marginal Rate of Return on investment in Farm Equipment Dereftum Total Farm Equipment Product bushels) (0) Marginal Marginal Product Revenue bushels) Product (4) = (3) x S4 Marginal Resource Mar Cost Rate (5) Hetim 16 The No equipment Tractor-Tiller Combine Irrigator Harrow 1.000 1,000 2,000 2,800 3,400 3.800 $4,000 800 600 $10,000 40% 10,000 3,200 2.400 1,600 Crop Sprayer Post Hole Digger 4,000 There is the demand for 200 10,000 10,000 4.000 800 10,000 10,000 Interest rate (percent) Marginal rate of return 0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 Investment internet The Tractor-Tiller yields a marginal revenue product of $4,000 per year and has a marginal resource cost of $10,000. As long as Jones has that $10,000 in- vested in the Tractor-Tiller, the rate of return earned on that investment is $4.000/$10,000, or 40 percent per year. Thus this investment yields a marginal nate of return of 40 percent per year, as shown in column (6). The Combine yields marginal revenue product of $3,200 per year and has a marginal cost of 510.000, so its marginal rate of return equals $3,200/$10,000, or 32 percent per year Dividing the marginal revenue product of capital in column (4) by the m inal resource cost of that capital in column (5) yields the marginal rate of return in column (6) for each piece of equipment. or 40 or 40 pelet the rate 00. As long product
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