Equilibrium market prices for capital and labor are $10 and $8,respectively.Then,the economy experiences one or more supply shocks,so that the marginal product of capital is $12,and the marginal product of labor is $9.Assuming that the available quantities of capital and labor are fixed,which of the following is (are)likely to decrease as the economy approaches its new equilibrium?
A)real rental price of capital
B)total output
C)economic profits
D)the quantity of capital in use
E)none of the above

Question

Quizplus · Accepted Answer

When the marginal products of capital and labor increase, it indicates that the factors are being used more efficiently, leading to higher economic profits. However, as the economy adjusts to the new equilibrium, competition will drive these profits down, likely decreasing economic profits.

Equilibrium Market Prices for Capital and Labor Are $10 and $8,respectively.Then,the