Consider the market for capital equipment. Suppose the value of the marginal product of capital equipment increases. Holding all else constant, the equilibrium quantity of capital equipment will
A)increase.
B)decrease.
C)not change.
D)It is not possible to determine what will happen to the equilibrium quantity of capital equipment.

Question

Quizplus · Accepted Answer

An increase in the value of the marginal product of capital equipment implies that the productivity of each unit of capital increases. This makes it more profitable for firms to invest in capital equipment, which in turn leads to an increase in the demand for capital equipment. As a result, the equilibrium quantity of capital equipment will increase.

Consider the Market for Capital Equipment