A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's:
A)price-expansion curve.
B)labor demand curve.
C)capital demand curve.
D)elasticity of demand curve.

Question

Quizplus · Accepted Answer

A curve that shows how the quantity of capital demanded by the firm varies with the price of capital is the firm's capital demand curve. It helps the firm to determine the optimal quantity of capital that should be used so as to minimize its costs. Thus, Option C is the correct answer. Option A is incorrect because there is no such thing as a price-expansion curve. Option B is incorrect because a labor demand curve reflects the relationship between the wage rate and the quantity of labor demanded by the firm. Option D is incorrect because an elasticity of demand curve shows how the quantity demanded of a good or service changes in response to a change in its price. The capital demand curve shows the relationship between the price of capital and the quantity of capital that the firm will use to minimize its costs. As the price of capital increases, the firm will use less capital, and vice versa. Therefore, the capital demand curve is a useful tool for firms to make decisions about their capital usage. None of the other curves listed in the answer choices are directly related to the relationship between the price of capital and the firm's cost-minimizing quantity of capital.

A Curve That Shows How the Firm's Cost-Minimizing Quantity of Capital