A decrease in the rental rate of capital can lead to a long run increase or decrease in the number of firms in the industry.

Question

Quizplus · Accepted Answer

A decrease in the rental rate of capital would make it more affordable for firms to invest in new capital, which could lead to an increase in the number of firms in the industry in the long run. However, it could also lead to existing firms expanding their capital stock, which could decrease the number of firms in the industry if competition becomes more intense. Overall, the effect on the number of firms would depend on various other factors such as market conditions and entry barriers.

A Decrease in the Rental Rate of Capital Can Lead