Consider the user cost of capital in the presence of taxes as shown below. The definitions of the variables and parameters are the same as discussed n class. Now we introduce an additional factor, an investment tax credit (ITC): rather than costing p_k, a unit of capital costs (1- ITC)*p_k. That is, the government subsidizes the purchase of new capital, and the amount of the subsidy is given by ITC. Suppose the tax rate is 20%, ITC is 20%, growth rate of the price of capital is 0%, interest rate is 5% and the deprecation rate is 10%, what will be the user cost of capital? Round it to 2 decimal places. *

Consider the user cost of capital in the presence of taxes as shown below. The definitions of the variables and parameters are the same as discussed n class. Now we introduce an additional factor, an investment tax credit (ITC): rather than costing p_k, a unit of capital costs (1- ITC)p_k. That is, the government subsidizes the purchase of new capital, and the amount of the subsidy is given by ITC. Suppose the tax rate is 20%, ITC is 20%, growth rate of the price of capital is 0%, interest rate is 5% and the deprecation rate is 10%, what will be the user cost of capital? Round it to 2 decimal places.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.12P

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