Macro Module 15 Utilization rate practice exam questions

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Question 15.1: Utilization rate of capital

●    The real return on capital R/P is 18.78%.
●    The depreciation function δ(κ) is κ2 / 8.64, where κ is the utilization rate of capital.

What is the optimal utilization rate of capital?

Answer 15.1: maximize (R/P) × κ – δ(κ) = 18.78% × κ – κ2 / 8.64 by setting partial derivative with respect to κ equal to zero: 18.78% – 2 κ / 8.64 = 0 ➾ κ = 18.78% × 8.64 / 2 = 81.13%