Question 1 Suppose that the equation for the marginal productivity of capital is given by: MPK= 1,000-10K. The price of a unit of capital is 2,000. The rate of depreciation is: 2% per year. The real interest rate is: 3% per year. (MPK': future marginal product of capital) What is the user cost of capital? b. What is the desired capital stock? If the existing level of capital K, is equal to 50 units, what is the level of gross investment? a. c.

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Question 1 Suppose that the equation for the marginal productivity
of capital is given by: MPK= 1,000-10K. The price of a unit of capital is 2,000. The rate of
depreciation is: 2% per year. The real interest rate is: 3% per year. (MPK': future marginal product
of capital)
What is the user cost of capital?
b. What is the desired capital stock?
If the existing level of capital K, is equal to 50 units, what is the level of gross investment?
d. Suppose that energy prices will be relatively higher permanently. Do profit maximizing firms
keep choosing the same amount of capital stock at margin? Show your answer using
a.
с.
necessary graph(s).
Transcribed Image Text:Question 1 Suppose that the equation for the marginal productivity of capital is given by: MPK= 1,000-10K. The price of a unit of capital is 2,000. The rate of depreciation is: 2% per year. The real interest rate is: 3% per year. (MPK': future marginal product of capital) What is the user cost of capital? b. What is the desired capital stock? If the existing level of capital K, is equal to 50 units, what is the level of gross investment? d. Suppose that energy prices will be relatively higher permanently. Do profit maximizing firms keep choosing the same amount of capital stock at margin? Show your answer using a. с. necessary graph(s).
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