The price of a unit of capital is 2,000. The rate of depreciation is 1% per year. The annual real rate of interest is 14%.
What is the user cost of capital?
Please show working out
Price of one unit of capital = 2,000
Rate of depreciation = 1% or 0.01
Annual real rate of interest = 14% or 0.14
Calculate the user cost of capital -
User cost of capital = (rate of depreciation + annual real rate of interest) * price of one unit of capita
User cost of capital = (0.01 + 0.14) * 2,000
User cost of capital = 0.15 * 2,000 = 300
Thus,
The user cost of capital is 300.
The price of a unit of capital is 2,000. The rate of depreciation is 1% per...