Other things being equal, a technological change that raises the value of marginal product of capital raises the rental rate of capital because the
A) demand curve for capital shifts leftward.
B) supply curve of capital shifts rightward.
C) demand curve for capital shifts rightward.
D) supply curve of capital shifts leftward.

Question

Quizplus · Accepted Answer

A technological change that raises the value of the marginal product of capital increases the demand for capital, as firms are willing to pay more for capital that is now more productive. This is represented by a rightward shift in the demand curve for capital, leading to an increase in the rental rate of capital.

Other Things Being Equal, a Technological Change That Raises the Value