The demand curve for capital is
A)its entire marginal physical product curve.
B)the downward-sloping portion of its marginal physical product curve.
C)its entire marginal revenue product curve.
D)the downward-sloping portion of its marginal revenue product curve.

Question

Quizplus · Accepted Answer

The demand for capital is derived from its marginal revenue product (MRP) curve, which shows the additional revenue generated by each additional unit of capital. However, as the amount of capital increases, the marginal revenue product diminishes, just like with any other factor of production. Therefore, the demand curve for capital is the downward-sloping portion of its MRP curve. Choice A is incorrect because the entire marginal physical product curve shows the additional physical output generated by each additional unit of capital, but it does not directly determine the demand for capital. Choice B is incorrect because it only represents the marginal physical product, not the revenue generated, and therefore does not provide a complete picture of the demand for capital. Choice C is incorrect because the entire MRP curve includes both the upward and downward sloping portions, but only the downward portion represents the demand curve for capital.

The Demand Curve for Capital Is