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How does the increase in the existing capital stock affect the Marginal Efficiency of Capital (MEC)?
  • a)
    The MEC remains unchanged.
  • b)
    The MEC increases.
  • c)
    The MEC decreases.
  • d)
    The MEC becomes equal to the rate of interest.
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
How does the increase in the existing capital stock affect the Margina...
As the existing capital stock increases, the MEC falls due to the operation of the law of diminishing returns. The marginal physical productivity of capital and marginal revenue decline, leading to a decrease in the MEC.
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How does the increase in the existing capital stock affect the Marginal Efficiency of Capital (MEC)?a)The MEC remains unchanged.b)The MEC increases.c)The MEC decreases.d)The MEC becomes equal to the rate of interest.Correct answer is option 'C'. Can you explain this answer?
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