FIGURE 2 LOANABLE FUNDS MARKET AND INDIVIDUAL FIRM INVESTMENT
Panel A shows the market demand and supply of loanable funds, with equilibrium interest rates equal to i0. Individual firms such as the one shown in panel B will take this rate of interest, or cost of capital, and determine how much to invest. Firms make their best investments first, and then continue investing (to I0) until the cost of capital (i0) is equal to the MRPK.