Simultaneous Equations

question 28

Essay

Simultaneous Equations. Macrosoft, Inc., based in Seattle, Washington, manufactures a wide range of parts for the aircraft, automotive, and agricultural equipment industries. The company is currently evaluating the merits of building a new plant in order to fulfill a new contract with the federal government. The alternative to expansion is to use additional overtime, reduce other production, or a combination of both. The company will add new capacity only if the economy appears to be expanding. Forecasting the general economic activity of the United States is therefore an important input to the decision making process. The firm has collected data and estimated the following relations for the U. S. economy:

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Definitions:

Salvage Value

The forecasted worth of an asset upon reaching the end of its utility.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the central bank's discount window.

Depreciable Equipment

Tangible assets used in production or operations that are written off over their useful lives due to wear and tear or obsolescence.

Salvage Value

Salvage value is the estimated resale value of an asset at the end of its useful life, relevant in depreciation calculations.