The equation MPK = r* yields:
A)the amount of capital in an economy.
B)the optimal amount of capital,K*,a firm fires.
C)the optimal amount of capital,K*,a firm hires.
D)the quantity of capital a firm wants to hire at any rental rate of capital.
E)none of the above

Question

Quizplus · Accepted Answer

The equation MPK = r* represents the condition for a firm to optimize its use of capital. It means that the marginal product of capital (MPK) should be equal to the rental rate of capital (r*) in order for the firm to maximize its profits. Thus, the optimal amount of capital, K*, that a firm hires is determined by this equation. Therefore, option C is the correct answer.

The Equation MPK = R* Yields