APFIVE Derived Demand for Capital
If the demand for a firm’s product decreases, what is the expected effect on the firm’s demand for capital?
A
The derived demand for capital will increase as the firm substitutes labor with technology.
B
There will be no change because the demand for capital is independent of product demand.
C
The firm will maintain its capital usage to build long-term capacity, regardless of the current product demand level.
D
The derived demand for capital will decrease because lower product demand reduces the need for capital in production.
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