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Marginal Efficiency of Capital
(redirected from Marginal Productivity of Capital)

   Also found in: Encyclopedia 0.01 sec.
Marginal efficiency of capital
The percentage yield earned on an additional unit of capital.

Marginal Efficiency of Capital
The extra yield that an investor earns for each additional dollar of capital invested in the venture or security. The marginal efficiency of capital helps measure how much investment capital is worth the risk at a given return. It is also called marginal productivity of capital.


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The marginal productivity of capital (the gross rate of return) is appropriate for discounting future benefits when project outputs are perfect substitutes to private consumption goods.
[beta]] The first-order conditions yield the following expression for the marginal productivity of capital for firm i: (6) [delta][y.
There would then be a gap between the marginal productivity of capital that triggers investment and that which triggers disinvestment: To induce investment, capital would need to be productive enough to cover both the cost of capital and the cost of adjustment.
 
 
 
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