Consider the market for commercial ovens as a factor of production in the commercial bread industry. Assume that all commercial ovens are identical, they have a life span of 10 years, and the purchase price is $12 000. The present value of the stream of MRPs from the last oven purchased by each commercial bakery is $16 000. We can expect that
◦ investment demand by all firms will increase and there will be a tendency for the price of commercial ovens to rise.
◦ the purchase price of commercial ovens will fall until the price is equated with the PV of the stream of MRPs.
◦ investment demand by all firms will fall until the PV of the stream of MRPs falls to $12 000.
◦ profit-maximizing firms will reduce their capital stock of ovens until the PV of the stream of MRPs falls to $12 000.
◦ investment demand by all firms will rise until all firms have an identical capital stock.
Production efficiency.
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