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A firm has future marginal productivity of capital given by MPKf = 400 - 2K. The expected real interest rate is 5% per year, the
A firm has future marginal productivity of capital given by MPKf = 400 - 2K. The expected real interest rate is 5% per year, the depreciation rate of capital is 15% per year and the price of a unit of capital is 80 units of output. a. Calculate the user cost of capital. b. Determine the desired level of capital. c. Determine the level of desired investment if the current capital stock is 180 units.
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