Question

Which of these does NOT describe a friction that might prevent firms from choosing the optimal level of capital? A. Making too big of a change can be more expensive than making a few smaller changes. B. A firm might not be able to borrow enough to pay for the investments it wants to make. C. The firm likes its workers and doesn’t want to replace some jobs with machinery. D. Some capital is very specialized and cannot be re-sold in cases of economic downturns.

Answer 1

C. The firm likes its workers and doesn’t want to replace some jobs with machinery.

Step-by-step explanation:

Optimal level of capital simply refers to an ideal strategy used by a firm to raise capital. For example, a firm may decide between debt financing or equity financing, depending on the company's desired level of capital.

So, an already operational firm with that likes its workers and doesn’t want to replace some jobs with machinery has no direct relationship with its level of capital.