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Unformatted text preview: a Firm’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Having seen how to compute the cost of depreciation and the value of capital at time we now show how to compute
the opportunity cost of capital at time in the expression for the firm’s price of using own capital for its production over
) and ):
period (i.e. between times (
() In ECO 204, we will express the firm’s opportunity cost of using owned capital for its production in period as a “rate of
return” of the value of capital in period :
() ⏟ ⏟
() Remember that: the 1st period is between
; the 2nd period is between
etc. Let’s denote
the opportunity cost rate of return in period by ( ) so that the user cost of capital – or the price of using owned
capital -- in period is:
() ⏟ ⏟
() ( () ) ( ) ( )( () ) As long as you remember the difference between time and period we can write this as6:
Notice that over time ( )
this as (̇ ) () () (some people write this...
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This document was uploaded on 01/19/2014.
- Fall '14