The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income. Marginal efficiency of investment, in economics, expected rates of return on investment as additional units of investment are made under specified conditions and over a stated period of time. A comparison of these rates with the going rate of interest may be used to indicate the profitability of investment. It is calculated as the profit that a firm is expected to earn considering the cost of inputs and the depreciation of capital.
Investment is inversely related to interest rates, which are the cost of borrowing and the reward to lending. Investment is inversely related to interest rates for two main reasons. Firstly, if interest rates rise, the opportunity cost of investment rises. This implies higher investment spending with a lower interest rate. When GDP increases, the output and the capacity utilization increases. This results in an increase of capital investment.