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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...
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This document was uploaded on 01/19/2014.
- Fall '14