The Missing Link Chain-Link Fence Company is trying to determine how many chain-link fabricating machines to buy for its factory. If we define a chain-link fence of some specified length to be equal to one unit of output, the price of a new fabricating machine is 60 units of output, and the price of a one-year-old machine is 48 units of output. These relative prices are expected to be the same in the future. The expected future marginal product of fabricating machines, measured in units of output, is:

(1). Depreciation = 20%.

(2). user cost = 18 units.

(3). number of machines that will allow Missing Link to maximize its profit = 73.5 units.

Explanation:

Step one: the first step in solving this question is to calculate or determine the value of depreciation which can can be calculated by using the formula below;

Depreciation =( the price of a new fabricating machine ) - ( the price of one year old fabricating machine)/ the price of a new fabricating machine × 100.

Depreciation = 60 - 48/ 60 × 100 = 20%.

Step two: determine the user cost.

Thus, the user cost = (0.10 + 0.20) × 60 = 18 units.

Step three: detemine the number of machines that will allow Missing Link to maximize its profit.

Recall that the expected future marginal product of fabricating machines, measured in units of output, = 165 - 2K.

Thus, 165 - 2K = 18 units.

- 2K = 18 - 165.

K = 73.5 units.