A firm will continue investing up to the point at which the marginal revenue product of capital is equal to its rental cost.

Question

Quizplus · Accepted Answer

This statement is based on the principle of profit maximization in economics, where a firm will invest in capital up to the point where the additional revenue generated by the last unit of capital (marginal revenue product of capital) equals the additional cost of using that capital (its rental cost). This ensures that the firm is not spending more on capital than it is generating in revenue from that capital, optimizing its investment for maximum profit.

A Firm Will Continue Investing Up to the Point at Which