Capital inputs may cause confusion if they are purchased because firms must:
A)pay interest on borrowed money.
B)choose whether to rent or buy.
C)determine the equivalent rental price.
D)determine whether the input is a lemon.

Question

Quizplus · Accepted Answer

When firms purchase capital inputs, they must determine the equivalent rental price in order to make an informed decision. This involves calculating the cost of ownership (purchase price and maintenance costs) and comparing it to the cost of renting the same input. This can be a complex calculation that requires consideration of the expected lifespan of the input, the interest rate on borrowed funds, and the opportunity cost of using funds to purchase rather than invest elsewhere.

Capital Inputs May Cause Confusion If They Are Purchased Because