If the replacement cost of installed capital equals $20 trillion and the market value of installed capital equals $25 trillion, then according to q theory, businesses should:
A) add to capital stock.
B) let capital stock shrink.
C) keep capital stock unchanged.
D) reduce product prices to increase profits.

Question

Quizplus · Accepted Answer

According to q theory, businesses should add to their capital stock when the market value of installed capital exceeds the replacement cost of installed capital. In this case, the market value of installed capital ($25 trillion) is higher than the replacement cost of installed capital ($20 trillion), indicating that businesses should invest in adding to their capital stock.

If the Replacement Cost of Installed Capital Equals $20 Trillion