Difference between MEC and MEI
Marginal Efficiency of Capital (MEC)
Marginal Efficiency of Capital (MEC) is the rate of discount which makes the discounted present value of expected income stream equal to the cost of capital.
MEC was first introduced by J.M Keynes in 1936. According to him, it is an important determinant of autonomous investment.
The marginal efficiency of capital is a key concept in economics that describes the relationship between the production of goods and services and the investment in capital.
The marginal efficiency of capital is used to measure the amount of output produced by an extra unit of investment. The marginal efficiency of capital is important because it helps to understand how an economy grows and how resources are allocated.
The marginal efficiency of capital (MEC) is the increase in output that results from an additional unit of investment.
MEC is determined by the productive capacity of the capital goods available for use and the expected return on investment.
The MEC declines as the amount of capital invested increases, because each successive unit of investment has a lower expected return.
The MEC plays an important role in economic decision-making, because it represents the maximum return that can be expected from an additional unit of investment.
In order to maximize economic growth, firms must invest in projects with a MEC that is greater than the cost of capital.
The MEC can also be used to compare different investment opportunities and determine which one will generate the highest return.