If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.
A)falls; falls
B)falls; rises
C)rises; rises
D)rises; falls

Question

Quizplus · Accepted Answer

User cost is the sum of economic depreciation and the opportunity cost of the funds used to purchase and maintain the capital good. Therefore, if the rate of depreciation increases, the user cost of the capital stock will increase. As a result, firms will desire a smaller capital stock, and thus the desired capital stock will fall.

If the Rate of Depreciation Increases,then User Cost ________ and the Desired