Final answer:
An increase in capital costs raises the total costs, leading to an increased marginal cost for the firm, as capital cost is included in the total costs even though the capital itself is a fixed input in the short run.
Step-by-step explanation:
The correct option : b
An increase in the cost of capital will increase the firm's marginal cost in the short run when a firm can only vary the quantity of labor hired. Although capital is a fixed input in the short run, the cost associated with it can still affect the firm’s overall cost structure. An increase in the cost of capital means that for every unit of output produced, the firm now has to allocate more resources to cover the capital costs, even if the firm cannot adjust the amount of capital it uses immediately.The marginal cost reflects the change in total costs when an additional unit of output is produced.
Since the cost of capital is part of the firm's total costs, an increase would cause the total cost for each additional unit of output to rise. Therefore, the firm's marginal cost—the cost of producing one more unit—will increase.In essence, the rise in capital costs elevates the baseline over which labor is the only adjustable factor, leading to a higher marginal cost of output. This is because the firm must account for higher expenditure on capital in the total cost of production for each additional unit produced, even though it is only the variable input (labor) that the firm can modify in the short run.