If the cost of using an additional unit of capital equipment is $24,000 and the marginal product of a unit of capital is 144,000 units of output, this means that for each additional dollar spent on capital, there is a gain of __________ units of output.

Question

Quizplus · Accepted Answer

To find how many units of output are gained for each additional dollar spent on capital, we need to use the formula for marginal product of capital: MPK = ΔQ/ΔK, where MPK is the marginal product of capital, ΔQ is the change in output, and ΔK is the change in capital.

In this case, we know that ΔK is $24,000 and MPK is 144,000, so we can solve for ΔQ:

144,000 = ΔQ/$24,000

ΔQ = $24,000 x 144,000 = 3,456,000

So for each additional dollar spent on capital, there is a gain of $3,456,000/($24,000 x 1) = 144 units of output. Therefore, the answer is C.

If the Cost of Using an Additional Unit of Capital