A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's
A) Price-expansion curve
B) Labor demand curve
C) Capital demand curve
D) Elasticity of demand curve

Question

Quizplus · Accepted Answer

The curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the capital demand curve. This curve shows the optimal amount of capital a firm should use at different prices of capital in order to minimize its costs of production. The capital demand curve is downward-sloping, meaning that as the price of capital increases, the quantity of capital demanded by the firm decreases. This is because higher prices of capital increase the cost of using capital and make other factors of production (such as labor) relatively less expensive.

A Curve That Shows How the Firm's Cost-Minimizing Quantity of Capital