As the rental price of capital increases,less capital is used in production.

Question

Quizplus · Accepted Answer

When the rental price of capital increases, the cost of using capital increases as well. This leads to a decrease in the quantity of capital demanded in production because firms will substitute towards other inputs, such as labor or technology, to maintain their level of production at a lower cost. Therefore, less capital will be used in production as the rental price of capital increases.

As the Rental Price of Capital Increases,less Capital Is Used