11th grade economics

posted by .

Since capital are means of production e.g. machinery, how does that relate to the reward being interest? Business owners borrow money and pay interest but how does capital goods reward interest to business owners?

  • 11th grade economics -

    In economics "captial" generally means one of two things. First is physical capital which is, as you state, a means of production e.g., machinery. The second is financial capital e.g., cash. Now then, it is a bit easier to relate financial capital to interest income. However, the same principals apply to both kinds of capital In particular, what is the opportunity cost of financial capital? Say you have a large pile of cash which you want to use for a business. The opportunity cost would be the foregone interest income that you would have received. And if you kept the cash in a bank and earned interest, the opportunity cost of that interest income is the foregone rate of return on investing.

    I hope this helps.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. 11th grade economics

    Why is it that the reward for capital is interest?
  2. finance

    14–1. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $400 million. Since the primary asset of this business is real estate, Templeton’s …
  3. finance

    Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $410 million. Since the primary asset of this business is real estate, Templeton’s management …
  4. accounting

    amair started the business with a capital of rs60000 on 1jan 2009 during the year he had with drawn goods rs8000 and cash rs5000for personal use he has also paid life insurance premium rs.2000 he had aiso introduced additional capital …
  5. Accounting

    Needs the entries for the following scenarios: Capital accounts as follows : Mason ; 90,000 Jiri; 30,000 James; 60,000 a) Frank pays mason 25,000 for 20% of masons interest in the company b) Frank invests 60,000 cash in the partnership …
  6. Business

    Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $400 million. Since the primary asset of this business is real estate, Templeton's management …
  7. math

    Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $400 million. Since the primary asset of this business is real estate, Templeton’s management …
  8. Quantitative Business Analysis

    John runs a florist shop in a small Arkansas town and had to borrow $170,000 to start up the shop. He was able to borrow some from the state business development office at 4% but the rest he had to borrow from a "friend" who charged …
  9. Economics - PLEASE HELP

    Homework Help: Economics PLEASE CHECK MY ANSWERS! 1. The MAIN advantage to a corporation is.. A. Ease of entry B. Limited liability for the owners C. Dividends all go to one person D. Owners share managerial duty E. All of the above …
  10. Economics - PLEASE CHECK ANSWERS

    1. The main advantage to a corporation is.. A. Ease of entry B. Limited liability for the owners C. Dividends all go to one person D. Owners share managerial duty (I chose B) 2. The main advantage to a sole proprietorship is.. A. Ease …

More Similar Questions