Which of the following will occur when the capital stock falls?
A) There will be no change in profit per unit of capital.
B) Profit per unit of capital will decrease.
C) Profit per unit of capital will increase.
D) Profit per unit of capital initially decreases followed by increases.
E) There will be an ambiguous effect on profit per unit of capital.

Question

Quizplus · Accepted Answer

When the capital stock falls, the remaining capital becomes more scarce and thus more valuable. This typically leads to an increase in profit per unit of capital, as each unit of capital is now more productive relative to the reduced total capital available.

Which of the Following Will Occur When the Capital Stock