The conclusion that the firm makes use of capital up to the point where the marginal benefit of capital equals the rental price of capital is
A) supported by the capital budgeting approach but not the rental approach.
B) supported by the rental approach but not the capital budgeting approach.
C) supported by neither the capital budgeting approach nor the rental approach.
D) supported by both the capital budgeting approach and the rental approach.
E) a direct result of a firm that owns its own stock of capital.

Question

Quizplus · Accepted Answer

Both the capital budgeting approach and the rental approach support the conclusion that a firm will use capital up to the point where the marginal benefit of capital equals the rental price of capital. This principle is fundamental in economics, indicating efficient resource allocation where the cost of using one more unit of capital (marginal cost) equals the benefit derived from its use (marginal benefit).

The Conclusion That the Firm Makes Use of Capital Up