Firms will borrow to finance capital expansion until the MRP of the investment equals the

Question

Quizplus · Accepted Answer

Firms will continue to borrow for capital expansion until the marginal revenue product (MRP) of the investment equals the interest payment charged for borrowing. This is because the interest payment represents the cost of borrowing funds, and firms aim to invest in capital as long as the return (MRP) on the investment is greater than or equal to this cost.

Firms Will Borrow to Finance Capital Expansion Until the MRP