A technological improvement in the physical capital available to the firm has a similar impact on a firm's desired capital stock as

Question

Quizplus · Accepted Answer

A technological improvement in physical capital reduces the cost of capital goods, leading to a reduction in the price of capital goods. This reduces the cost of producing output, increasing the firm's profitability, and its MRP for capital. As a result, the firm would want to increase its desired capital stock. Therefore, option E, a reduction in the price of capital goods, is the most appropriate answer.

A Technological Improvement in the Physical Capital Available to the Firm