Let us assume that Machineries are the only type of capital that is used in the production function of a competitive firm. We also assume that the price for the products that are sold by this competitive firm is set at $5. Given the production function below, compute the Marginal Product of Machineries (MPK) and the Value of Marginal Product of Machineries (VMPK).
Given your computation for part 4.3., determine the equilibrium quantity of machineries that are employed by this competitive firm when the marginal cost of installing new machineries is $2000.
What is the decision rule for this optimal firm-level employment?
All else equal, how would an increase in the price of the product which is being produced by this firm affect its demand for machineries?
All else equal, what would happen to the optimal employment of machineries should the marginal cost of installing new machineries declines due to, say, a tax reform?