The diagram below shows an individual firm's investment demand curve. The market interest rate is iQ. a.
Question:
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a. Explain why the firm's investment demand curve is downward sloping.
b. Suppose the firm now expects the market for its product to be especially good in the future. Explain what happens to its investment demand curve.
c. Now suppose some technical problem leads to a reduction in the future stream of MRPs produced by capital. How does this affect the firm's investent demand curve?
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Step by Step Answer:
a The firm will compute the stream of expected MRPs from each unit of capital and then purchase all ...View the full answer
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Related Book For 
Microeconomics
ISBN: 978-0321866349
14th canadian Edition
Authors: Christopher T.S. Ragan, Richard G Lipsey
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