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A Firm Has Current and Future Marginal Productivity of Capital

question 73

Essay

A firm has current and future marginal productivity of capital given by MPK = 10,000 - 2K + N,and marginal productivity of labor given by MPN = 50 - 2N + K.The price of capital is $5000,the real interest rate is 10%,and capital depreciates at a 15% rate.The real wage rate is $15.
(a)Calculate the user cost of capital.
(b)Find the firm's optimal amount of employment and the size of the capital stock.


Definitions:

Organic Product

A naturally occurring material or product derived from living organisms, often referring to compounds containing carbon.

Major Organic

Referring to the primary organic compound formed in the largest quantity in an organic reaction.

Organic Product

A compound primarily composed of carbon and hydrogen, which may also contain elements like oxygen, nitrogen, sulfur, and phosphorus, synthesized by a living organism or through chemical reactions involving organic precursors.

Alkyllithium

A class of organolithium compounds characterized by a direct bond between a lithium atom and a carbon atom in an alkyl group.

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