Say a Firm That Sells Its Product at a Price

question 8

Multiple Choice

Say a firm that sells its product at a price of $40 is using 20 units of capital. If the marginal product of the last unit of capital used was 50, and the constant rental rate of capital is $2,000, then this firm should

• A)acquire more capital.
• B)decrease the amount of capital.
• C)continue to use same units of capital.
• D)decrease its output.

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Definitions:

Interest Rate

The percentage charged on borrowed money, reflecting the cost of borrowing or the gain from saving.

Capital Projects

Large-scale investment projects that require significant amounts of capital, typically in infrastructure, buildings, or technology, aiming for long-term benefits.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to address the time value of money.

Interest Rate

The fee, represented as a percentage of the total loan amount, that a lender requires from a borrower for the privilege of borrowing money or other resources.