To determine an individual profit- maximizing firm's maximum purchase price for a unit of capital it is necessary to

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To determine the maximum purchase price for a unit of capital, an individual profit-maximizing firm must compute the present value of the stream of benefits produced by the unit of capital. The present value gives the amount that the firm should pay upfront to earn the expected stream of benefits over time. The future value (choice A) is not relevant because it does not take into account the time value of money. While the interest rate is important in determining the cost of capital (choice B), it does not provide a direct calculation of the maximum purchase price. Similarly, the rental price of the unit of capital and the interest rate (choice C) do not provide a direct calculation of the maximum purchase price. Competing firms' willingness to pay (choice D) is not relevant to an individual firm's calculation of maximum purchase price.

To Determine an Individual Profit- Maximizing Firm's Maximum Purchase Price