Saying a firm will continue investing up to the point at which the marginal revenue product of capital is equal to the price of capital is equivalent to saying that a firm will keep investing in new capital up to the point where

Question

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The marginal revenue product (MRP) of capital is the additional revenue generated by an additional unit of capital. The price of capital is the cost of obtaining an additional unit of capital. Therefore, a firm will continue investing up to the point at which MRP equals the price of capital, which is the point where the expected rate of return is equal to the interest rate. This is because if the expected rate of return is lower than the interest rate, the firm could earn a higher return by investing in other opportunities, while if the expected rate of return is higher than the interest rate, the firm should continue investing until it reaches the point where the two are equal to maximize profits.

Saying a Firm Will Continue Investing Up to the Point