Question 1

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-As the total quantity of land is fixed the payment for land is termed as economic rent.

Accepted Answer

Economic rent refers to the payment for the use of a resource (like land) that is in fixed supply. The scenario's mention of income and job offers does not directly relate to the concept of economic rent, but the definition provided is accurate.

Question 2

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-For a perfectly competitive firm, the marginal revenue product is equal to the marginal product multiplied by the output price.

Accepted Answer

This statement is true. In a perfectly competitive market, the marginal revenue product measures the change in total revenue resulting from an additional unit of labor. It is equal to the product of the marginal product of labor (MPL) and the market price of the output. Therefore, MRPL = MPL x Price of Output.

Question 3

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Transfer earning is the minimum amount that has to be paid to a factor to allocate it in its next best alternative use.

Accepted Answer

Transfer earning refers to the minimum amount that a factor of production (such as labor) must be paid in order to retain it in its current use or to allocate it to its next best alternative use. In this scenario, the worker's transfer earnings would be $5,000 per month, as this is the minimum amount he would need to be paid to remain with Firm A.

Question 4

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If a dollar spent on capital yields less marginal revenue product than labor, the profit of the firm is reduced if it hires less capital than labor.

Accepted Answer

The statement is incorrect because if the marginal revenue product of capital is less than that of labor, the firm should allocate more resources to labor rather than capital to maximize profit, not the other way around.

Question 5

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Consider a perfectly competitive firm that can raise its output by 2 units by hiring an additional unit of capital. If the cost of hiring this additional unit of capital is $4 and the market price of the good is $1, the firm will certainly hire this unit of capital. [Hint: MRP = MP X MR]

Accepted Answer

The firm will not hire the additional unit of capital because the marginal revenue product (MRP = MP x MR) of the capital is $2 (2 units of output x $1 market price per unit), which is less than the cost of hiring the additional unit of capital ($4).

Question 6

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If there is imperfect competition in the product market, the marginal revenue product of a factor will be greater than the value of its marginal product.

Accepted Answer

In imperfect competition, the marginal revenue product (MRP) of a factor is actually less than the value of its marginal product (VMP) because the firm faces a downward-sloping demand curve, meaning it must lower prices to sell additional output.

Question 7

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-A perfectly competitive firm hires more resources than a monopolist.

Accepted Answer

In a perfectly competitive market, firms hire resources until their marginal revenue product is equal to the wage rate, which results in hiring more resources than a monopolist who hires until their marginal revenue product is equal to the marginal cost of labor. Therefore, in this case, a worker in Firm A might decide to move to Firm B because the higher salary offered by Firm B is likely due to the higher demand for labor in the perfectly competitive market.

Question 8

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-The greater the elasticity of supply of a resource the greater is its economic rent.

Accepted Answer

Economic rent is the payment to a factor of production in excess of what is needed to keep it in its current use. The elasticity of supply of a resource affects its economic rent, but not always in a direct way. If the supply is perfectly inelastic, the entire payment can be considered economic rent, whereas if the supply is more elastic, the economic rent portion is typically smaller because the resource can be attracted to different uses more easily.

Question 9

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-Economic rent is the sum of actual earning and transfer earning.

Accepted Answer

Economic rent is the difference between actual earnings and the amount required to keep the worker in his current job, which is the transfer earnings. In this scenario, the economic rent for the worker would be $2,000, which is the difference between his actual salary of $5,000 and his transfer earnings of $7,000 (the amount he would have to be paid to keep him in his current job). Therefore, economic rent is not the sum of actual earning and transfer earning, as stated in option A, but rather the difference between them.

Question 10

Scenario 14.1
A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month.
-If a particular factor has a specific use, its transfer earning is very high.

Accepted Answer

Transfer earnings refer to the minimum amount a factor (such as labor) must be paid to keep it in its current use, not the amount it could earn if it has a specific or unique use. The scenario describes an increase in income due to a job change, not the concept of transfer earnings.

Quiz 15: Resource Markets

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -As the total quantity of land is fixed the payment for land is termed as economic rent.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -For a perfectly competitive firm, the marginal revenue product is equal to the marginal product multiplied by the output price.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Transfer earning is the minimum amount that has to be paid to a factor to allocate it in its next best alternative use.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -A perfectly competitive firm hires more resources than a monopolist.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -The greater the elasticity of supply of a resource the greater is its economic rent.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -Economic rent is the sum of actual earning and transfer earning.

Scenario 14.1 A worker in Firm A earns an income of $5,000 per month. He has been offered a job in Firm B where he will be paid a salary of $7,000 per month. -If a particular factor has a specific use, its transfer earning is very high.