macroeconomics (Investment)

(e) How does the desired investment demand depend on the real interest rate (r), on the level of productivity (MPK) and on the real installation cost ()? Explain graphically (i.e. using a diagram).

(f) Imagine now that the cost is an INCREASING FUNCTION of the desired amount of capital, say (K) with 0 (K) > 0. If K = 0, then the cost is 0, and then, the cost increases with capital. Compared to the constant cost case, does the rm desire more capital, or less capital? Show graphically (i.e. using a diagram).

Answer rating: 100% (QA)

The Answer is in the image, click to view ... View the full answer