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The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used. In most ...
In the long run, if demand remains the same and the more productive methods are adopted across the entire economy, the amount of labour required (as a ratio to capital, i.e. the organic composition of capital) would decrease. Now, assuming value is tied to the amount of labor necessary, the value of the physical output would decrease relative ...
It is commonly represented as total assets less current liabilities (or fixed assets plus working capital requirement). [2] ROCE uses the reported (period end) capital numbers; if one instead uses the average of the opening and closing capital for the period, one obtains return on average capital employed (ROACE). [citation needed]
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". [1] It is used to evaluate new projects of a company.
The decision of increasing the production is only beneficial if the MP K is higher than the cost of capital of each additional unit. Otherwise, if the cost of capital is higher, the firm will be losing profit when adding extra units of physical capital. [3] This concept equals the reciprocal of the incremental capital-output ratio.
Overall costs of capital projects are known to be subject to economies of scale. A crude estimate is that if the capital cost for a given sized piece of equipment is known, changing the size will change the capital cost by the 0.6 power of the capacity ratio (the point six to the power rule). [16] [d]
Such costs are separated into a firm's cost of debt and cost of equity and attributed to these two kinds of capital sources. A firm's overall cost of capital, which consists of the two types of capital costs, is then determined as the weighted average cost of capital. Knowing a firm's cost of capital is needed in order to make better decisions ...
foreign trade which reduces constant capital-input costs. technological innovations which reduce constant capital-input costs. the specific distribution of surplus-value as profit, interest, rent, taxes and fees, and the division between distributed and undistributed components of the new value added. market expansion (more sales, in less time).