Suppose Your Company Owns a Computer That Cost $10,000 and Depreciates

question 101

Essay

Suppose your company owns a computer that cost $10,000 and depreciates $500 per year. If the interest rate is 5 percent, what is the implicit rental price of the computer? When interest rates increase, are firms more or less likely to purchase equipment?

---

Definitions:

Individual Demand Curves

Graphs showing the relationship between the price of a good and the quantity of that good a single consumer is willing to buy at various prices.

Horizontal Sum

In economics, the process of aggregating demand curves of different individuals to derive the market demand curve.

Inferior Good

A type of good whose demand decreases as consumers' income rises, contrary to what happens with normal goods.

Substitute Goods

Products or services that can be used in place of one another, where an increase in the price of one leads to an increase in demand for the other.