The equation for the marginal productivity of capital is given by
Homework Answers
User cost of capital = ( r+d ) * P_k
=( .09+.05)*2000
= 280
r : interest rate, d: depreciation rate, P_k : price of capital
At desired level of capital stock :
MPK = user cost of capital
1000-10*K = 280
Thus K* = 72
Thus gross level of investment = K* - current capital stock
= 72-60 = 12
Thus I_t = 12 units answer
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