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

Question

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

Quizplus · Accepted Answer

MPK (marginal product of capital) measures the additional output that can be produced by adding one more unit of capital. If MPK is greater than the cost of capital (r), it is profitable to hire more capital. Therefore, the firm should hire more capital until MPK equals r. Hence, the correct answer is D.

If MPK >\gt> R, the Firm: A) Should Hire More Labor

If MPK $\gt$ R, the Firm:
A) Should Hire More Labor