Consider a firm that faces the following expected future marginal product of capital: M P K f = 1 , 000 − 2 K , where M
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Consider a firm that faces the following expected future marginal product of capital: M P K f = 1 , 000 − 2 K , where M
Consider a firm that faces the following expected futuremarginal product of capital: M P K f = 1 , 000 − 2 K , where M P Kf is the expected future marginal product of capital and K is thecapital stock. The price of capital, p k , is 1,000, the realinterest rate, r is 10%, and the depreciation rate, d , is 15%. A.What is the cost of capital? B. What is the value of the firm'sdesired capital stock? C. Now, suppose that the firm must pay a 50%tax on its revenue. What is the value of the desired capitalstock?