Microeconomics,, 16th Canadian Edition

we determine how much a firm would be willing to pay to purchase a piece of capital equipment. This takes us to the concept of p ...

15.2 Present Value Suppose a firm buys a piece of capital equipment and thereby obtains the use of that equipment until it wears ...

In what follows, we simplify our discussion by assuming that the future benefits from a piece of capital equipment are known wit ...

Table15-1 The Present Value of a Single Sum One Year in the Future Anyone who lends out $95.24 for one year at 5 percent interes ...

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Several Periods in the Future Now we know how to calculate the present value of a single sum that is receivable one year in the ...

Table15-2 The Present Value of a Single Sum Several Years in the Future Table 15-2 computes the present value of an MRP of $500 ...

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The Present Value of a Stream of Future Sums Now consider the present value of a stream of payments that continues for many peri ...

Table15-3 The Present Value of a Stream of Future Sums In general, if is the MRP that occurs t years from now, if i is the inter ...

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Summary The concept of present value can be confusing at first, but you should now see the straightforward way to evaluate a str ...

15.3 The Demand for Capital As we said earlier, a firm’s demand for financial capital comes from its demand for physical capital ...

profit-maximizing firm is simple: If the PV is greater than or equal to the purchase price, the firm should buy the capital good ...

Figure 15-2 The Firm’s Optimal Capital Stock maximizing firm will go on adding to its stock of capital until the present value o ...

revenue product of capital—the annual MRP generated by each computer is less than for the previous one. The third column compute ...

The future MRPs can also increase if the market price for the firm’s product increases (or if demand for its product increases a ...

any given period, a firm can determine its optimal stock of capital as shown in Figure 15-2. But if the economic environment cha ...

Figure 15-3 The Interest Rate and the Firm’s Investment Demand In Figure 15-2 , there is a negative relationship between the pur ...