Increased Capital Productivity Boosts Demand

Steps:

• Artificial intelligence enhances the marginal productivity of capital (MPK).
• Higher MPK makes capital more valuable in production.
• Firms respond by demanding more capital at any given rental price.
• This shifts the demand curve for capital to the right.

Why B is correct:

• Demand for an input rises when its marginal product increases, per the derived demand theory in economics.

Why the others are wrong:

• A: Higher productivity lowers production costs by enabling more output per unit of capital.
• C: Increased demand raises the price (rental rate) of capital, not lowers it.
• D: Technological advances affect demand, not the supply of capital, which depends on savings and investment.

Final answer: B