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Demand for Capital

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Please respond to number two, thanks.

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We examine the second scenario:
Decreased shift in demand for capital occurs, or downward shift in demand for capital occurs during an economic downturn. Downward shift in demand for capital means that at the same interest rates less capital is demanded. Also, it means that the same capital is demanded at lower interest rates. The economic growth rate declines or the growth rate may even turn negative. This means the growth rate of GDP declines. The demand for ...

Solution Summary

The answer to this problem explains decreased shift in demand for capital. The second scenario is explained in this response. The references related to the answer are also included.

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I need some help on the below detailed, not much required approx 350 words....

A firm finds there is a sudden increase in the demand for its product. In the short run, it must operate longer hours and pay higher overtime wage rates. In the long-run, however, the firm can install more machines and operate them for various periods of time. Which do you think will be lower, the short-run or long-run average cost of the increased output? How is your answer affected by the fact that the long-run average cost included the cost of the new machines the firm buys, while the short-run average cost includes no machine purchases? Explain your answer.

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