Determinants of Marginal efficiency of capital (MEC)
- Anticipated level of output is an expected increase in the level of output by the firm leads to an increase in MEC but an expected decline in the level of output by the firm leads to a reduction in MEC.
- Level of taxation; the higher the amount of taxes imposed on capital, the lower the MEC and the lower the tax rate, the higher the MEC.
- Quantity and quality of other co-operate factors; the availability and high quality of corporate factors increases the MEC but lack and poor quality of such factors decreases the MEC.
- 4. Available excess capacity; availability of excess capacity increases the MEG but existence of full capacity reduces the MEC
- Rate of interest on capital; the higher the rate of interest, the lower the MEC and the lower the interest rate, the higher the MEC.
- The rate of depreciation of capital; the higher the rate of depreciation, the lower the MEC and the lower the rate of depreciation the higher the MEC. ,
- Market size; the bigger the market size, the higher the MEC and the lower the market size, the lower the MEC.
- The general price levels (inflation); the high level of inflation in the economy reduces the MEC but low level of inflation in the economy increases the MEC
CATEGORIES Economics
TAGS Dr. Bbosa Science
