Thus the cost of investing in

factor1, including principal and interest compounded across 2 years (

), is $10

1.1

1.1 = $12.10. The investment costs for

factor2 and

factor3 are computed similarly:
$30

1.1

1.1 = $36.30
$20

1.1

1.1 = $24.20
The period of production for factor4 and factor5, however, is only 1 year:
$5

1.1 = $5.50
$25

1.1 = $27.50
The marginal cost of production for the incremental unit is the sum of the costs of the five factors (with interest):
$12.10 + $36.30 + $24.20 + $5.50 + $27.50 = $105.60

Therefore Smith's marginal return is $110 - $105.60 = $4.40.

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