How Does the Quantity of Capital Already in Use Affect

question 23

Multiple Choice

How does the quantity of capital already in use affect the level of investment?
I. A greater capital stock is likely to lead to more investment since there will be more capital
To replace.
II. A greater capital stock is likely to lead to less investment because further increases in
The demand for investment raise the cost of capital.
III. For a given desired level of capital stock, the amount of investment needed to reach that
Level will be lower when the current capital stock is higher.
IV. Investment means adding new capital; the existing stock of capital does not influence
Additions to capital.

• A) I and II only
• B) I and III only
• C) I, II, and III only
• D) IV only

---

Definitions:

Fixed Cost

Costs that do not change with the level of output produced, such as rent and salaries.

Profits

The financial gain obtained when the revenue from business activities exceeds expenses, costs, and taxes.

Collusion

An agreement, usually secretive, between two or more parties to limit competition and manipulate prices for their benefit.

Quantity Output

The total amount of goods or services produced by a business, sector, or economy.