The Burning Belly Taco Stand is considering buying some new special ovens. Each oven will cost $1,000, and will last for 2 years before it wears out. The ovens will be used to make the Taco Stands famous "Burning Ring of Fire" tacos, and will generate a value of marginal product of $600 for the first oven, $570 for the second oven, and $530 for the third oven.(Assume all revenues are earned at the end of the year.) If the interest rate is 10 percent, how many ovens will the Burning Belly Taco Stand buy? (hint: calculate the present value of the VMP (value of marginal product) of the first, second and third oven, and compared that with the purchase price of the oven)

Can someone tell me the steps I should do, or exactly how to do this question?

To determine how many ovens the Burning Belly Taco Stand should buy, you need to compare the present value of the value of marginal product (VMP) with the purchase price of the ovens. Here are the steps you should follow:

Step 1: Calculate the present value of the VMP for each oven.
- The present value is calculated by discounting the VMP at the given interest rate, which is 10 percent in this case.
- To calculate the present value of the first oven, divide its VMP ($600) by 1 plus the interest rate (1 + 0.1). This will give you $600 / (1 + 0.1) = $545.45.
- Similarly, calculate the present values of the second and third ovens, using their respective VMPs and the same interest rate. You should get $520.66 for the second oven and $487.66 for the third oven.

Step 2: Compare the present value of the VMP with the purchase price.
- Since each oven costs $1,000, compare the present values calculated in step 1 with the purchase price to determine if it is profitable to buy each oven.
- For the first oven, the present value of the VMP ($545.45) is less than the purchase price ($1,000), so it is not profitable to buy the first oven.
- For the second oven, the present value of the VMP ($520.66) is also less than the purchase price ($1,000), so it is not profitable to buy the second oven.
- However, for the third oven, the present value of the VMP ($487.66) is greater than the purchase price ($1,000), so it is profitable to buy the third oven.

Step 3: Make a decision based on the comparison in step 2.
- Since it is not profitable to buy the first or second oven, the Burning Belly Taco Stand should only buy the third oven.
- Therefore, the number of ovens the taco stand should buy is 1.

In summary, the Burning Belly Taco Stand should only purchase 1 oven because its present value of the value of marginal product is profitable for that oven.