When the capital stock reaches a steady state, the:
A) marginal product of capital must exceed the real cost of capital.
B) marginal product of capital must equal the real cost of capital.
C) real cost of capital must exceed the marginal product of capital.
D) real cost of capital must exceed the real rental price of capital.

Question

Quizplus · Accepted Answer

In steady state, the economy is in equilibrium where the capital stock isn't growing or shrinking. At such a point, the marginal product of capital (MPK) equals the real cost of capital (r), which means that investing in an additional unit of capital yields the same rate of return as the cost incurred for borrowing funds to acquire that capital.

When the Capital Stock Reaches a Steady State, The