Question

How to differentiate between Marginal Efficiency of Capital and Marginal Efficiency of Investment ?

How to differentiate between Marginal Efficiency of Capital and Marginal Efficiency of Investment ?

Homework Answers

Answer #1

"Marginal efficiency of capital" refers to the unique rate of discount which would make the present value of the expected net returns from a capital asset just equal to its supply price when there is no rise in the supply price of the asset.

"Marginal efficiency of investment" to refer to that rate of discount which would make the present value of the expected net returns from the capital asset just equal to its supply price in the presence of rise in its price even in the short run.

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