What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale?
A)the quantity of economic profits earned by firm owners
B)the interest rate
C)the ratio of public saving to private saving
D)the marginal productivity of labour relative to the marginal productivity of capital

Question

Quizplus · Accepted Answer

In a competitive, profit-maximizing economy with constant returns to scale, the wage to rental rate of capital ratio is determined by the marginal productivity of labor relative to the marginal productivity of capital.

What Determines the Ratio of the Wage to Rental Rate