Question: 3. Show the corresponding effect on capital. Because output fell and capital remained the same, the marginal product of capital fell from MPK = 12

3. Show the corresponding effect on capital. Because output fell and capital remained the same, the marginal product of capital fell from MPK = 12 Q/K to MP*

K = 14 0.5 * 0.5 * Q/K = 14 MPK. Consequently, the real price of capital, r*/p = MPK, dropped.

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