Authors libby rittenberg 690

calculation aids the decision maker in determining whether or not to pursue an investment project Explain the demand curve for capital and the factors that can cause it to shift Explain and illustrate the loanable funds market and explain how changes in the demand for capital affect that market and vice versa The quantity of capital that firms employ in their production of goods and services has enormously important implications for economic activity and for the standard of living people in the economy enjoy Increases in capital increase the marginal product of labor and boost wages at the same time they boost total output An increase in the stock of capital therefore tends to raise incomes and improve the standard of living in the economy Capital is often a fixed factor of production in the short run A firm cannot quickly retool an assembly line or add a new office building Determining the quantity of capital a firm will use is likely to involve long-run choices The Demand for Capital A firm uses additional units of a factor until marginal revenue product equals marginal factor cost Capital is no different from other factors of production, save for the fact that the revenues and costs it generates are distributed over time As the first step in assessing a firm’s demand for capital, we determine the present value of marginal revenue products and marginal factor costs Capital and Net Present Value Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 690