ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP

After all we dont have exogenously given prices for

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: aft (capital)” each month is the monthly lease rate) or it can purchase aircraft(s) from (say) Airbus and Boeing (latter having a fire sale recently; sorry bad joke ). Where do we get the “input price” of “owned capital” in a production period? After all, we don’t have exogenously given prices for “owned” capital! Economists and accountants calculate ( ), the price of using owned capital in period , as the “user cost of capital” in period which is the cost to the owner (the firm) of using capital to produce its output in period . The user cost consists of two components (these costs are borne by the firm only if it is uses its owned capital in its production): () Firstly, because the firm owns its capital, it has to bear the cost of depreciation in each period of the capital’s “useful life”. Secondly, if the firm uses its own capital for its production then by definition it hasn’t leased its capital to some other firm and consequently has “given up” profits it would’ve made by...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online