ECON 222 Lecture Notes - Lecture 6: Gross Domestic Product, Inventory Investment

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There is a trade off between the present and the future. Builder will compare the potential cost like depreciation and interest cost. A firm s inventories are unsold goods, unfinished goods and raw materials. Inventory investment is a component of gross domestic product (gdp). What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. Amount of capital that allows a firm to earn the largest expected profit. The amount of investment a firm needs to maximum profit. Managers compare the cost and the potential profit, for example when buying a new machine, the firm will compare the cost and benefit. The user cost of capital is the expected real cost of using of capital for a specific period of time.

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