You are trying to figure out how much capacity to add to your factory.You will increase capacity as long as
A)the expected marginal product of capital is positive.
B)the expected marginal product of capital is greater than or equal to the marginal product of capital.
C)the expected marginal product of capital is greater than or equal to the expected marginal product of labour.
D)the expected marginal product of capital is greater than or equal to the user cost of capital.

Question

Quizplus · Accepted Answer

The user cost of capital includes the cost of capital and the expected rate of return. Therefore, adding capacity only makes sense if the expected marginal product of capital is greater than or equal to the user cost of capital.

You Are Trying to Figure Out How Much Capacity to Add