rental rate

(noun)

The price of capital.

Related Terms

Examples of rental rate in the following topics:

  • Capital and Technology

    • Firms add capital to the point where the value of marginal product of capital is equal to the rental rate of capital.
    • Because of this, we say that the price of capital is the rental rate.
    • A firm will continue to add capital up to the point where the rental rate is equal to the value of marginal product of capital , which is the point of equilibrium.
    • Firms will increase the quantity of capital hired to the point where the value of marginal product of capital is equal to the rental rate of capital.

  • Inputs and Outputs of the Function

    • Although in reality a firm may own the capital that it uses, economists typically refer to the ongoing cost of employing capital as the rental rate because the opportunity cost of employing capital is the income that a firm could receive by renting it out.
    • Thus, the price of capital is the rental rate.
    • The price of labor is the prevailing wage rate, since wages are the cost of hiring an additional unit of capital.

  • Conditions of Equilibrium

    • Equilibrium in the labor market requires that the marginal revenue product of labor is equal to the wage rate, and that MPL/PL=MPK/PK.
    • The supply of labor is elastic and increases with the wage rate (upward sloping supply); and
    • The point at which the MRPL equals the prevailing wage rate is the labor market equilibrium.
    • The cost of that action will be the output lost from cutting back on capital, which is the ratio of the marginal product of capital (MPK) to the price of capital (the rental rate, PK).
    • The optimal demand for labor is located where the marginal product equals the real wage rate.

  • Personal Income

    • Income from production is generated both by the labor of individuals (for example, in the form of wages and salaries and of proprietors' income) and by the capital that they own (in the form of rental income of persons).

  • Types of Costs

    • Fixed costs (also referred to as overhead costs) tend to be time related costs, including salaries or monthly rental fees.

  • Introducing Exchange Rates

    • In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another.
    • In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, or rate) between two currencies is the rate at which one currency will be exchanged for another.
    • The spot exchange rate refers to the current exchange rate.
    • In the retail currency exchange market, a different buying rate and selling rate will be quoted by money dealers.
    • The buying rate is the rate at which money dealers will buy foreign currency, and the selling rate is the rate at which they will sell the currency.

  • Learning from GDP

    • Rental income (mainly for the use of real estate) net of expenses of landlords;
    • Formula: GDI (gross domestic income, which should equate to gross domestic product) = Compensation of employees + Net interest + Rental & royalty income + Business cash flow

  • National Income

    • NDP at factor cost = compensation of employees + net interest + rental and royalty income + profit of incorporated and unincorporated NDP at factor cost

  • Aggregate Expenditure at Economic Equilibrium

    • Classical economics states that the factor payments (wage and rental payments) made during the production process create enough income in the economy to create a demand for the products that were produced.

  • The Federal Funds Rate

    • The Federal Funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve.
    • The Federal Funds rate (or fed funds rate) is the interest rate at which depository institutions (primarily banks) actively trade balances held at the Federal Reserve.
    • The Federal Funds rate is directly related to the interest rate paid by firms and individuals.
    • In fact, many mortgages and credit card interest rates are indexed to the Federal Funds rate - a homeowner might pay an adjustable interest rate that is set at the level of the Federal Funds rate plus four percent, for example.
    • The Fed doesn't control the Federal Funds rate directly - it is negotiated between borrowing and lending banks - but it does set a target interest rate and uses open market operations in order to achieve that rate.