The correspondence between the demand for capital and various measures of the return on assets, the cost of capital … explanations, this paper considers the consequences of allowing for declining returns to capital--a declining marginal efficiency … of capital schedule (MEC). This modification not only relaxes the connection between the demand for capital and many of …

The correspondence between the demand for capital and various measures of Tobin’s q often is tenuous (Abel and … changes in the optimal stock of capital must correspond consistently to changes in marginal q. …

Within optimal investment programs, the accumulation of capital is a stable function of marginal q. Much of the … interest in q, however, derives from its potential to reflect the demand for capital when the optimal program changes. If the … marginal return on capital diminishes as capital increases, the correspondence between marginal q and the optimal stock of …