If R is the real interest rate;w is the real wage;MPK is the marginal product of capital;and MPL is the marginal product of labor,which of the following conditions informs the profit-maximizing firm how much capital to invest in? A)R = MPK B)R = w C)R = 0 and MPK = MPL D)MPK = MPL E)MPK MPL if R

Question

If R is the real interest rate;w is the real wage;MPK is the marginal product of capital;and MPL is the marginal product of labor,which of the following conditions informs the profit-maximizing firm how much capital to invest in?
A)R = MPK
B)R = w
C)R = 0 and MPK = MPL
D)MPK = MPL
E)MPK > MPL if R < w

Quizplus · Accepted Answer

A profit-maximizing firm will invest in capital until the marginal product of capital (MPK) equals the real interest rate (R), as this is the point where the cost of capital equals the benefit from its use.

If R Is the Real Interest Rate;w Is the Real