(13) Which of the following machines has the lowest user cost? Machine A costs $10,000 in real dollars and depreciates at a 20% rate, machine B costs $25,000 in real dollars and depreciates at a 10% rate, machine C costs $15,000 in real dollars and depreciates at a 15% rate, and machine D costs $20,000 in real dollars and depreciates at a 5% rate. The nominal interest rate is 4% and the expected inflation rate is 2%. (A) Machine A (B) Machine B (C) Machine C (D) Machine D
(13) Which of the following machines has the lowest user cost? Machine A costs $10,000 in real dollars and depreciates at a 20% rate, machine B costs $25,000 in real dollars and depreciates at a 10% rate, machine C costs $15,000 in real dollars and depreciates at a 15% rate, and machine D costs $20,000 in real dollars and depreciates at a 5% rate. The nominal interest rate is 4% and the expected inflation rate is 2%. (A) Machine A (B) Machine B (C) Machine C (D) Machine D
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:(13) Which of the following machines has the lowest user cost? Machine A costs
$10,000 in real dollars and depreciates at a 20% rate, machine B costs $25,000
in real dollars and depreciates at a 10% rate, machine C costs $15,000 in real
dollars and depreciates at a 15% rate, and machine D costs $20,000 in real dollars
and depreciates at a 5% rate. The nominal interest rate is 4% and the expected
inflation rate is 2%.
(A) Machine A
(B) Machine B
(C) Machine C
(D) Machine D
(14) You have just purchased a new machine which costs $1000 in real dollars, and you
depreciate the machine at a rate of 15% each year. You can borrow money from
the bank at a nominal rate of 8%, or receive a nominal rate of 2% for depositing
money at the bank. The expected inflation rate in the coming year is 2%. You
used your own funds to purchase the machine. The user cost of capital for the
first year is
(A) $150
(B) $170
(C) $210
(D) $230
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