Assume that time is discrete with two periods t = 1,2. There is no uncertainty. A firm maximizes its value D+ + 17,D2 1+r where Dis the firm's dividend in period t and r is the exogenous real interest rate. Profits, output net of labor costs, for the firm are given by II = u8, K, 112 = 62K3. Above the profitability indexes 6, and 6, are taken as given by the firm, the capital elasticity satisfies 0 0, which stands for capital utilization, is chosen by the firm. If a firm invests Ii in period 1 and chooses to utilize its capital stock in the amount u, capital in period 2 is given by K2 = (1-5)K1 + 11-d(u). Here, the depreciation rate satisfies 0 0, which stands for capital utilization, is chosen by the firm. If a firm invests Ii in period 1 and chooses to utilize its capital stock in the amount u, capital in period 2 is given by K2 = (1-5)K1 + 11-d(u). Here, the depreciation rate satisfies 0