MEC curve slope downward:
The slope of MEC curve is downward because of two reasons:
(i) When more
quantity of a good is produced with the greater amount of a capital asset price
of goods decline.
(ii) The supply price
of the capital asset may rise because the increasing demand for it, will bring
about increase in its cost of production.
Figure-1:
Graphically:
From the figure-1 x-axis denotes MEC and rate of interest. It is seen from the
figure-1 that when investment is capital asset is equal to OM1, MEC and the
rate of interest is Oi1. When the investment is increase to OM2, MEC falls to
Oi2. Likewise, when investment rises to Om3, MEC and rate of interest further
diminishes to Oi3. We see that there is a inverse relationship between investment
and MEC, rate of interest. For this reason the slope of MEC curve is downward.
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