If MPK = r,the firm:
A)should hire more labor.
B)should hire more capital until MPK= r.
C)should hire more capital until MPK = 0.
D)should get rid of some capital until MPK = r.
E)has the optimal amount of capital.

Question

Quizplus · Accepted Answer

When MPK = r, it means that the marginal product of capital is equal to the rental rate of capital. This indicates that the firm is already operating at the point where it is using capital efficiently and any further changes in the amount of capital hired will result in decreasing marginal productivity. Therefore, the optimal choice is to maintain the current level of capital, represented by option E.

If MPK = R,the Firm