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In finance, leverage, also known as gearing, is any technique involving borrowing funds to buy an investment.. Financial leverage is named after a lever in physics, which amplifies a small input force into a greater output force, because successful leverage amplifies the smaller amounts of money needed for borrowing into large amounts of profit.
A lever is a simple machine consisting of a beam or rigid rod pivoted at a fixed hinge, or fulcrum. A lever is a rigid body capable of rotating on a point on itself. On the basis of the locations of fulcrum, load and effort, the lever is divided into three types. It is one of the six simple machines identified by Renaissance scientists.
As in microeconomics supply and demand models, first-order conditions that the derivative of this function with respect to capital and labor will be zero at the functions maximum. Thus (assuming P = 1 ) we can calculate the wages and the rental rate of capital:
Isoelastic utility for different values of . When > the curve approaches the horizontal axis asymptotically from below with no lower bound.. In economics, the isoelastic function for utility, also known as the isoelastic utility function, or power utility function, is used to express utility in terms of consumption or some other economic variable that a decision-maker is concerned with.
In the case of two goods and two individuals, the contract curve can be found as follows. Here refers to the final amount of good 2 allocated to person 1, etc., and refer to the final levels of utility experienced by person 1 and person 2 respectively, refers to the level of utility that person 2 would receive from the initial allocation without trading at all, and and refer to the fixed total ...
Constant elasticity of substitution (CES) is a common specification of many production functions and utility functions in neoclassical economics. CES holds that the ability to substitute one input factor with another (for example labour with capital) to maintain the same level of production stays constant over different production levels.
In economics, affine pricing is a situation where buying more than zero of a good gains a fixed benefit or cost, and each purchase after that gains a per-unit benefit or cost. Calculation [ edit ]
An additive utility function is characteristic of independent goods. For example, an apple and a hat are considered independent: the utility a person receives from having an apple is the same whether or not he has a hat, and vice versa. A typical utility function for this case is given at the right.