Assume the Following: (1)the Real Cost of a Unit of Capital

question 58

Multiple Choice

Assume the following: (1) the real cost of a unit of capital is one; (2) the unit of capital is expected to increase a firm's real profit by $10,000 each year,and depreciate by 8% each year (δ = .08) ; and (3) The real interest rate is 2% (r = .02) .What is the "user cost" or "rental cost" of this unit of capital?

• A)0.02
• B)0.06
• C)0.10
• D)0.08 / .02 = 4
• E) none of the above

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