The firm in the table below produces denim jeans and each unit of capital represents one sewing machine. The MRP for each of machines 10 through 14 is provided. Each sewing machine delivers a stream of MRPs beginning one year from now, for a total of 2 years. Assume that after 2 years each sewing machine is worth nothing.
Number of
Sewing Machines | Annual MRP |
| 10 | $2000 |
| 11 | $1800 |
| 12 | $1600 |
| 13 | $1400 |
| 14 | $1200 |
TABLE 15-2
Refer to Table 15-2. What principle will this firm follow to determine the optimal number of sewing machines to own and operate?
◦ The annual MRP on the last unit of capital should be equal to (or greater than) its purchase price.
◦ The marginal products of each machine should be equal.
◦ The present value of the future MRPs on the last unit of capital is equal to (or greater than) its purchase price.
◦ The present value of the future MRPs should be increasing over time.
◦ The marginal revenue products of all the machines should be equal.
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