Author Question: Up to which point will a perfectly competitive firm continue to invest? Explain carefully. What ... (Read 27 times)

amal · **on:** Jun 29, 2018

Up to which point will a perfectly competitive firm continue to invest? Explain carefully.

What will be an ideal response?

Question 2

Refer to Figure 18-1. The appreciation of the euro is represented as a movement from

A) A to B. B) D to A. C) A to C. D) B to C. E) D to C.

milbourne11 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A perfectly competitive profit-maximizing firm will keep investing in new capital up to the point at which the expected rate of return is equal to the interest rate. This is equivalent to saying that the firm will continue investing up to the point at which the marginal revenue product of capital is equal to the price of capital, or MRPK = PK.

Answer to Question 2

B