What is the optimal number of machines for the company

Assignment Help Macroeconomics

Reference no: EM131494516

Macroeconomics Assignment

The Missing Link Chain-Link Fence Company is trying to determine how many chain-link fabricating machines to buy for its factory. If we define a chain-link fence of some specified length to be equal to one unit of output, the price of a new fabricating machine is 60 units of output, and the price of a one-year-old machine is 51 units of output.

These relative prices are expected to be the same in the future. The expected future marginal product of fabricating machines, measured in units of output, is 165 - 2K, where K is the number of machines in use. There are no taxes of any sort. The real interest rate is 10% per year.

a. What is the user cost of capital? Specify the units in which your answer is measured.

b. Determine the number of machines that will allow Missing Link to maximize its profit.

c. Suppose that Missing Link must pay a tax equal to 40% of its gross revenue. What is the optimal number of machines for the company?

d. Suppose that in addition to the 40% tax on revenue described in Part (c), the firm can take advantage of a 20% investment tax credit, which allows it to reduce its taxes paid by 20% of the cost of any new machines purchased. What is Missing Link's desired capital stock now? (Hint: An investment tax credit effectively reduces the price of capital to the firm.)

Reference no: EM131494516

Questions Cloud

Review the case study of smith v levine : The Smiths decided to sell their home, and a potential buyer had the house inspected. The inspection indicated that there was a defective foundation.

State of simple harmonic motion : Once released, a pendulum swings back and forth in a state of simple harmonic motion.

Capacity of the reservoir : Over a 40 day period in the spring the average inflow rate into the reservoir was 35.6m^3^s-1.

Root-mean square of nitrogen molecule : Estimate the temperature at which the root-mean square of nitrogen molecule in earth's atmosphere equals the escape velocity from earth's gravitational field.

What is the optimal number of machines for the company : Suppose that Missing Link must pay a tax equal to 40% of its gross revenue. What is the optimal number of machines for the company?

Discuss how you would use security restriction policies : Discuss how the Windows® firewall differs from a hardware firewall. When would you not want to use a Windows®-based firewall?

Illustrate the case study of sechrest v safiol : Safiol had a contract to purchase a lot from Sechrest. He wanted to build a house on the lot and gave Sechrest a deposit of $3,800.

Explain what is meant by damping : Explain what is meant by damping. Choose a speci?c technology that requires a damping mechanism and describe how the damping takes place.

Chemical extinguishing system : Describe you feel it would or would not be appropriate to use a dry chemical extinguishing system in a total flooding application for sensitive computer.

User Account

All Pages