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7 May, 17:08

The price of a unit of capital is 2 comma 000. The rate of depreciation is: 20 % per year. The annual real rate of interest is: 7 % What is the user cost of capital?

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  1. 7 May, 20:10
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    Unit price = 2,000

    User cost of capital is this

    c = r + d

    c = (7% of 2000) + (20% of 2000)

    c = 140 + 400 = 540

    Explanation:

    The real rate of interest, r = user cost of capital, c - rate of depreciation, d
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