The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then:
A)there will be no transaction since $200 is greater than $100.
B)a transaction will occur, and the price paid for the factor of production will be $150.
C)a transaction will occur, and the price paid for the factor of production will be $200.
D)a transaction will occur, and the price paid for the factor of production will be $100.

Question

Quizplus · Accepted Answer

Economic rent is bid up to prevent a unique factor from moving to another firm. Here, the purchaser of the factor will be willing to pay his reservation price to prevent the unique factor from going elsewhere.

The Supplier of a Factor of Production Has a Reservation