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Macro midterm spring

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Without the transversality condition then marginally raising investment in period and holding the additional capital forever has a nonzero impact on the firm's profits, which would mean that the firm is not maximizing profit. Transversality condition is therefore necessary for profit maximization. Intuitively this version of the condition states that it cannot be optimal to hold valuable capital forever.

Author: Daniel Ortega


Transversality condition

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