If the Real Rental Price of Capital Is $10,000 Per

question 55

Multiple Choice

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should:

• A) add to its capital stock.
• B) let its capital stock shrink.
• C) keep its capital stock unchanged.
• D) reduce the real rental price of capital.

---

Definitions:

Variable Component

A part of cost or expense that fluctuates with changes in production volume or activity level.

Fixed Component

Part of a company's costs that do not change with the level of production or sales, such as rent, salaries, and insurance.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or services, calculated based on estimated costs and activity levels before the actual costs are known.

Overhead Efficiency

The effectiveness with which a company utilizes its overhead, often analyzed through the comparison of actual overhead costs with budgeted or standard costs.