Which of the following statements is true regarding the firm's investment decision? a. Firm's objective is...

Which of the following statements is true regarding the firm's investment decision?

a. Firm's objective is to keep increasing capital stock as long as the marginal product of future capital is greater than the user costs

a. The firm's objective when choosing the optimal level of capital stock is to maximize investment

c. As long as MPKf is greater than user costs, profits cannot be increased

d. When user costs are greater than MPKf firms simply increase Kf to maximize profits and obtain optimal Kf

Solutions

Expert Solution

The answer with explanation of the question asked above is : (Option B - The firm's objective when choosing the optimal level of capital stock is to maximize investment) because investment decision are the decision made by the investors or the top level management for selecting the type of assets which will be invested by the firm to maximize investment. (Option A - Firm's objective is to keep increasing capital stock as long as the marginal product of future capital is greater than the user costs) is false because when a firm makes decision regarding Investment their first priority is to maximize investment by choosing good capital stocks. (Option C - As long as MPKf is greater than user costs, profits cannot be increased) is false because when firm makes decision regarding Investment they do not focus on MPKf is greater than user cost or not. (Option D - When user costs are greater than MPKf firms simply increase Kf to maximize profits and obtain optimal Kf) is false because when firm makes decision regarding Investment they focus on choosing optimal capital stock to maximize profit rather than increasing Kf to maximize profit.

Rahul Sunny answered 1 year ago

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