Answer:
(1). Depreciation = 20%.
(2). user cost = 18 units.
(3). number of machines that will allow Missing Link to maximize its profit = 73.5 units.
Explanation:
Step one: the first step in solving this question is to calculate or determine the value of depreciation which can can be calculated by using the formula below;
Depreciation =( the price of a new fabricating machine ) - ( the price of one year old fabricating machine)/ the price of a new fabricating machine × 100.
Depreciation = 60 - 48/ 60 × 100 = 20%.
Step two: determine the user cost.
Thus, the user cost = (0.10 + 0.20) × 60 = 18 units.
Step three: detemine the number of machines that will allow Missing Link to maximize its profit.
Recall that the expected future marginal product of fabricating machines, measured in units of output, = 165 - 2K.
Thus, 165 - 2K = 18 units.
- 2K = 18 - 165.
K = 73.5 units.
