The correct answer is D) the expected marginal product of capital is greater than or equal to the user cost of capital.
When determining how much capacity to add to a factory, it is important to consider the expected marginal product of capital and the user cost of capital.
The expected marginal product of capital refers to the additional output that is expected to be generated by adding one unit of capital to the production process. If the expected marginal product of capital is positive, it means that adding more capital will result in increased production.
The user cost of capital, on the other hand, represents the cost of using capital in the production process. It includes factors such as the cost of purchasing or renting the capital, maintenance costs, and the opportunity cost of using the capital in one production process instead of an alternative use.
To determine whether to increase capacity, we compare the expected marginal product of capital with the user cost of capital. If the expected marginal product of capital is greater than or equal to the user cost of capital, it means that the additional output generated by adding more capital is worth the cost of using that capital. Therefore, it is economically beneficial to increase capacity.
In summary, when deciding how much capacity to add to a factory, it is important to consider the expected marginal product of capital and the user cost of capital. Increasing capacity is economically viable if the expected marginal product of capital is greater than or equal to the user cost of capital. The correct answer is D.