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A country's production function works like this each year: Y = 4K 0.5 It rents capital from the rest of the world at a cost
A country's production function works like this each year:
Y = 4K0.5
It rents capital from the rest of the world at a cost of r per unit of capital per year. Fortunately for us, capital doesn't depreciate in this country, and since firms are profit maximizing, then MPK=r. The marginal benefit of a unit of capital is the MPK and the marginal cost of a unit of capital isr.
If the rental rate of capital is 0.1 (or 10% per year), how much capital will it rent this year, if firms in this country are profit-maximizers?
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