A profit-maximizing firm utilizes capital goods as inputs in production to the point at which the marginal revenue product of capital is always a constant amount above the price of the next UNIT of capital employed, thereby ensuring positive profits.

Question

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A profit-maximizing firm utilizes capital goods to the point where the marginal revenue product (MRP) of capital is equal to the price of the next unit of capital employed, not a constant amount above it. This ensures that the firm is not spending more on the last unit of capital than what it earns from it, optimizing profit.

A Profit-Maximizing Firm Utilizes Capital Goods as Inputs in Production