Econ101November7 - Econ 101 I. November 7, 2007 Physical...

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Econ 101 November 7, 2007 I. Physical Capital a. Land, buildings, equipment, intellectual property (patents, licenses) that are capable of producing income in the future b. We describe things if they (capital) last more then one period c. Financial Capital Assets are opposites- they are legal contracts that promise to deliver income in the future under some conditions II. Capital Market Equilibrium a. Demand curve is the sum of capital demand curves of firms at optimal quantity of inputs (capital and labor) given the input prices b. Supply of physical capital is the result of other firms constructing the capital goods and offering them for rental III. Implicit Rental Prices and the supply of physical Capital a. Any business has the option of either renting its capital or purchasing the capital and (implicitly) renting it to itself b. Implicit rental costs includes opportunity cost of purchasing physical capital asset and using it for one period c. Market Equilibrium rental price = foregone interest on the money used to buy machine + the depreciation experienced in one year d. Foregone interest = opportunity cost of money x purchase price
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This note was uploaded on 02/20/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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Econ101November7 - Econ 101 I. November 7, 2007 Physical...

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