Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a two-period economy with investment, as studied in class. The optimal invest- ment at t = 1 is characterized by the following optimality

 

Consider a two-period economy with investment, as studied in class. The optimal invest- ment at t = 1 is characterized by the following optimality condition: A2f'(k2) = r+ 8. (1) Explain why the left-hand side is called 'marginal product of capital' (MPK) and the right-hand side is called 'user cost of capital', and why the optimality conditions equalizes the two.

Step by Step Solution

3.40 Rating (150 Votes )

There are 3 Steps involved in it

Step: 1

The marginal cost of capital refers to the cost to raise one additional dollar of capital from the s... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics

Authors: Robert J Gordon

12th edition

138014914, 978-0138014919

More Books

Students also viewed these Economics questions

Question

What is management growth? What are its factors

Answered: 1 week ago