Marginal Efficiency of Capital

Discipline: Economics

Developed by English economist John Maynard Keynes (1883-1946), marginal efficiency of capital describes the rate of discount which would make the present value of expected income from fixed capital assets equal to the present supply price of the asset.

As investment increases, the rate of returns decreases because early investment was directed at the most lucrative possibilities; subsequent investment is channelled into less promising areas and the returns diminish.

Also see: arbitrage pricing policy, capital asset pricing model, capital theory, portfolio selection theory, uncertainty

Source:
J M Keynes, The General Theory of Employment, Interest and Money (New York, 1936)

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