If the rate of interest is fixed, a profit-maximizing firm will employ capital up to the quantity where MRP = interest rate.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will continue to employ capital up to the point where the marginal revenue product (MRP) of capital equals the interest rate, as this is the point where the cost of employing an additional unit of capital equals the revenue generated by that unit, maximizing profit.

If the Rate of Interest Is Fixed, a Profit-Maximizing Firm