1. Hula hoop fabrications cost $100 each. The H2H company is trying to decide how many of these machines to buy. The number of hoops for each year and for each level of capital stock shown as follows: Number of fabrications Number of Hoops produce per year 1 100 150 180 195 3 4 5 205 210 Hula Hoop have a real value of $1 each. There is no other costs besides the cost of fabricators. a) Find the expected future marginal product of capital (in terms of dollar) for each level of capital. b) If the real interest rate is 12% per year, and the depreciation rate of capital is 20% per year, find the user cost of capital (in dollar per fabricator per year). How many fabricators should H2H buy? c) Repeat part (b) for a real interest rate of 8% per year? d) Repeat part (b) for a 40% tax on H2H's sales revenues. e) A new innovation doubles the number of hoops fabricator can produce. How many fabricators should H2H buy when the real interest rate is 12% per year? 8% per year? Assume that there are no taxes and that the depreciation rate is still 20% per year.

1. Hula hoop fabrications cost $100 each. The H2H company is trying to decide how many of these machines to buy. The number of hoops for each year and for each level of capital stock shown as follows: Number of fabrications Number of Hoops produce per year 1 100 150 180 195 3 4 5 205 210 Hula Hoop have a real value of $1 each. There is no other costs besides the cost of fabricators. a) Find the expected future marginal product of capital (in terms of dollar) for each level of capital. b) If the real interest rate is 12% per year, and the depreciation rate of capital is 20% per year, find the user cost of capital (in dollar per fabricator per year). How many fabricators should H2H buy? c) Repeat part (b) for a real interest rate of 8% per year? d) Repeat part (b) for a 40% tax on H2H's sales revenues. e) A new innovation doubles the number of hoops fabricator can produce. How many fabricators should H2H buy when the real interest rate is 12% per year? 8% per year? Assume that there are no taxes and that the depreciation rate is still 20% per year.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Hula hoop fabrications cost $100 each. The H2H company is trying to decide how many of these
machines to buy. The number of hoops for each year and for each level of capital stock shown as
follows:
Number of fabrications
Number of Hoops produce per year
1
100
2
150
3
180
4
195
205
210
Hula Hoop have a real value of $1 each. There is no other costs besides the cost of fabricators.
a) Find the expected future marginal product of capital (in terms of dollar) for each level of capital.
b) If the real interest rate is 12% per year, and the depreciation rate of capital is 20% per year, find
the user cost of capital (in dollar per fabricator per year). How many fabricators should H2H buy?
c) Repeat part (b) for a real interest rate of 8% per year?
d) Repeat part (b) for a 40% tax on H2H's sales revenues.
e) A new innovation doubles the number of hoops fabricator can produce. How many fabricators
should H2H buy when the real interest rate is 12% per year? 8% per year? Assume that there
are no taxes and that the depreciation rate is still 20% per year.

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