If technology, A, increases, then:
A)the MPK and the demand for capital services increase.
B)the MPK and the demand for capital services decrease.
C)the MPK increases and the demand for capital services decreases.
D)the MPK decreases and the demand for capital services increases.

Question

Quizplus · Accepted Answer

As technology increases, the productivity of capital services also increases, leading to an increase in the marginal productivity of capital (MPK). As a result, the demand for capital services also increases, as firms seek to take advantage of the increased productivity. Therefore, both the MPK and the demand for capital services increase when technology increases.

If Technology, A, Increases, Then