Question

if the marginal product of capital is less than the real rental rate of capital, then businesses a.) should hire more labor b.) should hire more capital c.) should get rid of some capital d.) has the optimal level of capital and labor

Answer 1

Option C

• The marginal product of capital refers to the increase in the output produced with an additional use of an unit of capital.
• The firms use capital and labour together in order to produce goods and services in a market.
• Businesses decide the use of capital by comparing the marginal product of capital and the real rental cost of capital.
• When the marginal product of capital exceeds the real rental rate of capital, the firm can earn profits by hiring additional capital.
• But if the marginal product of capital is lower than real rental capital, the firms must get rid off some capital to avoid losses.