The derivatives of this functional are:Taken together, this implies that:The ratio of the marginal product of capital and the marginal product of labor is:Since this new cost of capital is perceived to be less than the market cost of capital, the firm will tend to overinvest in capital.
The derivatives of this functional express a connection between capital and labor, suggesting that the ratio of their marginal products is consistent. This ratio is also equivalent to the inverse of the ratio of the firm's new capital costs to its market capital costs. Consequently, if the company believes its new capital costs are lower than those on the market, it will probably invest too much in capital.