Consider the market for capital equipment. Suppose the price of firms' output increases. Holding all else constant, the equilibrium rental price of capital equipment will

Question

Quizplus · Accepted Answer

An increase in firms' output price will lead to an increase in firms' profits. This, in turn, will increase the demand for capital equipment as firms seek to expand production. As a result, the equilibrium rental price of capital equipment will increase to reflect this increased demand.

Consider the Market for Capital Equipment