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

Question

Quizplus · Accepted Answer

If the value of the marginal product of capital equipment increases, it means that the additional output produced by using an additional unit of capital equipment has become more valuable. This will increase the demand for capital equipment, causing an increase in the equilibrium rental price. Specifically, the equilibrium rental price will increase until it reaches a new equilibrium where the increased demand for capital equipment is satisfied at the new, higher rental price.

Consider the Market for Capital Equipment