If the real interest rate is 6% how many commercial lawn mowers will Randy buy now?.
Randy owns a landscaping business. At the beginning of the season Randy must decide how many commer Show more Randy owns a landscaping business. At the beginning of the season Randy must decide how many commercial lawn mowers he should purchase. Assume that each additional lawn mower costs $10000 and that Randys investment will be financed by a bank loan. Randy has estimated his rate of return as shown in the table below. Number of Lawn Mowers Rate of Return (percent) 1 10% 2 9 3 8 4 7 5 6 6 5 7 4 a. If the real interest rate is 6% how many commercial lawn mowers will Randy buy? _______ lawn mowers b. Using the information in the table plot the investment demand curve (I1) for Randys landscaping business. c. Suppose that unusually bad weather reduces the demand for lawn mowing and therefore the profitability of additional lawn mowers. This forces Randy to re-estimate the rate of return for each lawn mower by 2%. In other words the new rate of return for the first mower is 8% the rate of return for the second mower is 7% and so forth. Using the graph above plot the new investment demand curve (I2). d. If the real interest rate is 6% how many commercial lawn mowers will Randy buy now? _________ lawn mowers Show less
If the real interest rate is 6% how many commercial lawn mowers will Randy buy now?
