Abstract
In this chapter we study firms’ demand of capital goods. A difference is made between renting and buying capital goods, and discount and present value calculations are presented as tools in comparing money flows at different time units. The parities between discrete and continuous time interest rates and discrete time interest rates with different time units are defined. The force acting upon the capital input of a profit-seeking firm is defined, and the firm’s investment decision is modeled on this basis in a dynamic form.
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Notes
- 1.
The term ‘discount’ comes from the reduction in future debt payments a debtor receives if he repays his debt before the terminal date.
References
Chiang, A. C. (1984). Fundamental methods of mathematical economics (3rd ed.) Singapore: McGraw-Hill International Editions.
Hull, J. C. (2000). Options, futures, & other derivatives (4th ed.). USA: Prentice-Hall International, Inc.
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Estola, M. (2017). Capital Goods as Firms’ Inputs. In: Newtonian Microeconomics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-46879-2_7
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DOI: https://doi.org/10.1007/978-3-319-46879-2_7
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Publisher Name: Palgrave Macmillan, Cham
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