## (Solved) Consider the following information about a firm: Marginal product of capital in the next year: MPK = 206 - 4K units of output per additional unit of...

Consider the following information about a firm:

Marginal product of capital in the next year: MPK = 206 - 4K units of output per additional unit of capital per year
Real interest rate: r = 0.05 per year
Depreciation rate of capital: d = 0.10 per year
Price of capital: pK = 200 units of output per unit of capital
Capital stock at beginning of year: K0 = 40 units of capital

What is the user cost of capital for the firm?

 20 units of output per unit of capital per year
 25 units of output per unit of capital per year
 10 units of output per unit of capital per year
 30 units of output per unit of capital per year

Consider the following information about a firm:

Marginal product of capital in the next year: MPK = 206 - 4K units of output per additional unit of capital per year
Real interest rate: r = 0.05 per year
Depreciation rate of capital: d = 0.10 per year
Price of capital: pK = 200 units of output per unit of capital
Capital stock at beginning of year: K0 = 40 units of capital

What is the desired level of the capital stock at the beginning of the next year?

 40 units of capital
 46 units of capital
 44 units of capital
 38 units of capital

Consider the following information about a firm:

Marginal product of capital in the next year: MPK = 206 - 4K units of output per additional unit of capital per year
Real interest rate: r = 0.05 per year
Depreciation rate of capital: d = 0.10 per year
Price of capital: pK = 200 units of output per unit of capital
Capital stock at beginning of year: K0 = 40 units of capital

What level of gross investment during the current year will attain the desired capital stock at the beginning of next year?

 12 units of capital per year
 10 units of capital per year
 8 units of capital per year
 14 units of capital per year

Consider the following information about a firm:

Marginal product of capital in the next year: MPK = 206 - 4K units of output per additional unit of capital per year
Real interest rate: r = 0.05 per year
Depreciation rate of capital: d = 0.10 per year
Price of capital: pK = 200 units of output per unit of capital
Capital stock at beginning of year: K0 = 40 units of capital

Assume now there is a 40% tax on firms' output and depreciation and interest payments are not tax deductible. What is the desired level of the capital stock at the beginning of the next year?

 41 units of capital
 40 units of capital
 38 units of capital
 39 units of capital

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This question was answered on: Sep 05, 2019

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Sep 05, 2019

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