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THE subject of this paper is the determination of the size of investment undertaken in a certain period by a given entrepreneur. He intends, for instance, to build a factory producing a certain product. He is faced with given market conditions: he knows the price of the product in question, the level of wages and of prices of raw materials, the cost of construction and the rate of interest. Besides he has some rather vague ideas as to the probable future change of prices and costs. This knowledge is the basis for the planning of investment, i.e., for the choice of the amount of capital (measured in terms of money) to be invested and the method of production to be applied. With a given amount of capital and a given method of production the entrepreneur is able to estimate the series of future returns (differences between revenues and effective costs) q1, q2 ..... .q. during the prospective life of the factory. We shall call the rate e at which the series of returns must be discounted in order to obtain the amount invested k-the efficiency of investment,1 whilst by prospective profit p we denote the product k.e. Now we can assume that with given amount invested k the entrepreneur chooses such a method of production as would maximise the efficiency of investment or what amounts to the same (k being given) the prospective profit p = ke. Thus to every value of there corresponds a definite value of maximum prospective profit pm:
M. Kalecki (Mon,) studied this question.