A firm that is maximizing its profits will keep renting machines up to the point where:

Question

Quizplus · Accepted Answer

When a firm rents a machine, it is likely to achieve maximum profits as long as the additional value that the machine adds to the production process (i.e. the marginal value product) is equal to the cost of renting the machine (i.e. the market rental rate). At this point, any additional rental cost would exceed the additional revenue generated by the machine, resulting in lower profits. Therefore, the firm will rent machines up to the point where the marginal value product of machines is equal to the market rental rate for machines (i.e. choice C).

A Firm That Is Maximizing Its Profits Will Keep Renting