If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should: add to its capital stock. keep its capital stock unchanged. let its capital stock shrink. reduce the real rental price of capital.

Question

Business

Haylee Li

4 July, 05:14

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should: add to its capital stock. keep its capital stock unchanged. let its capital stock shrink. reduce the real rental price of capital.

+5

Answers (1)

Know the Answer?

Reuben Terrell · Answer 1

Add to its capital stock.

Explanation:

Rental firms earn profit by buying goods and renting them out at a price higher. The advantage of owning capital is the real rental price of capital for the units of capital owned and rented.

In this case, the real rental price of capital is $10,000 per unit where as the real cost of capital is $9,000 per unit. This means the firm is getting a profit from the business of $1000 per units assuming interest on their loans, cost of loss / gain on the price of capital and depreciation costs are taken care. To maximize profit at this level, the firm can increase capital stock by buying more goods and renting them out at the current real rental price of capital.