Marginal efficiency of capital


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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.
References in periodicals archive ?
Fuller (2013) compared the Keynesian Marginal Efficiency of Capital approach with the Austrian Net Present Value approach.
In particular, as interest rates rise, shorter projects will be preferred, while longer projects are preferred when interest rates are lower In the marginal efficiency of capital approach, there is no such switching.
However, the story changes if we allow for the startup cost to change and then look at the marginal efficiency of capital (MEC) criterion.
For it now seems clear that the disquisitions of the schoolmen were directed towards the elucidation of a formula which should allow the schedule of marginal efficiency of capital to be high, whilst using rule and custom and the moral law to keep down the rate of interest.
Keynes argued that the soundness of the usury proscription resided in the Scholastics' effort to reward investment by keeping the marginal efficiency of capital high and not to reward mere savings by keeping the rate of interest low.
To a Schoolman, the marginal efficiency of capital would be another name for the loss emergent or gain cessant upon the relinquishing of money, the true cost of the alternative opportunities.
The modern economic assumption of the marginal efficiency of capital, that rate of return which can be expected from the employment of a particular amount of capital, was correlated with the scholastic assumption of lucrum cessans or cessant gain.
In distinct contrast, the Keynesians adopt the rate of return approach to economic calculation in which the marginal efficiency of capital is used to rank investment projects.
In the rate of return approach investors use the marginal efficiency of capital (MEC) to rank investment projects.
The marginal efficiency of capital can also be found on the NPV profile.