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Question 3 (Lesson 6: Investment) A firm's output (Y) depends on how much capital (K) it has, according to the equation: Y = 20K

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Question 3 (Lesson 6: Investment) A firm's output (Y) depends on how much capital (K) it has, according to the equation: Y = 20K - K2. The real interest rate is 6% per year, the depreciation rate of capital is 14% per year and the price of a unit of capital is $80, and each unit of output sells for $1. The real price of capital is not expected to change. Complete the Table below by calculating output and the marginal product of capital (MPK) for capital levels 1-6. (6 points) Capital Output Marginal Product of Capital (MPK) 0 0 1 2 3 4 5 6 At a real interest of 6%, how many units of capital does the firm desire? Briefly explain your answer. (4 points) 3

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