If the real interest rate is less than the marginal product of capital,firms are better off:
A)producing at a loss.
B)saving their earnings in an economywide financial market.
C)accumulating more inventory.
D)borrowing in financial markets and buying more capital.
E)none of the above

Question

Quizplus · Accepted Answer

If the real interest rate is less than the marginal product of capital, firms are better off borrowing in financial markets and buying more capital. This is because investing in capital will generate a return greater than the cost of borrowing. This will increase the firm's profitability and growth in the long run. Therefore, option D is the correct answer. Options A, B, and C are not viable solutions as they do not address the issue of low profitability caused by the low real interest rate.

If the Real Interest Rate Is Less Than the Marginal