1. when the present value to the owner of the earnings from the capital exceeds the marginal cost of producing it.
2. as long as the present value to the owner of the earnings from the capital is positive.
3. as long as the market price of the capital is equal to or greater than the marginal cost of producing it.
4. in all of the above cases.
Choose the correct option.
Option 1 is the correct answer. If the marginal cost (i.e., the cost of producing an additional unit of the capital) is less than the present value of that unit to its owner, the wealth of the owner of the capital is increased by adding to the stock. It is insufficient that the present value of the earnings from the capital merely be positive since wealth would be reduced if it cost more to produce a unit of the capital than that unit was worth.
Option 3 is incorrect because it will pay to invest in capital even if there is no market for it as long as the present value to its owner is greater than the marginal cost of adding his/her stock. If the capital involved happens to be an idea or a technique which will inevitably become public property in the sense that everyone can use it simultaneously, its initial owner may still be able to capture enough income from it to generate a present value greater than the production cost. The person investing in or "inventing" the idea may be able to embed it in a piece of physical capital in a way that it cannot be copied by others for some time or can be patented to prevent others from using it without paying a fee.