The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor

-If a person is earning $80,000 per year as a dentist and could earn at most $45,000 per year doing something else, his transfer earnings are ____, whereas his economic rent is ____.
A)$45,000, $35,000
B)$80,000, $45,000
C)$45,000, $80,000
D)$80,000, $35,000
E)$35,000, $45,000

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor.Figure 14.6
In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
 
-If a person is earning $80,000 per year as a dentist and could earn at most $45,000 per year doing something else, his transfer earnings are ____, whereas his economic rent is ____.
A)$45,000, $35,000 
B)$80,000, $45,000 
C)$45,000, $80,000 
D)$80,000, $35,000 
E)$35,000, $45,000

Quizplus · Accepted Answer

Transfer earnings are the earnings that a factor of production (in this case, the person's labor) could receive in its next best alternative use, which is $45,000. Economic rent is the difference between what a factor is actually earning and what it could earn in the next best alternative, which is $80,000 - $45,000 = $35,000.

The Figure Given Below Represents Equilibrium in the Labor Market