Question 1

Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?

Accepted Answer

The answer of Describe the difference between the purchase price...

Question 2

Describe the process by which the market for capital and the market for land reach equilibrium.As part of your description,elaborate on the role of the stock of the resource versus the flow of services from the resource.

Accepted Answer

The answer of Describe the process by which the market...

Question 3

Explain how a firm values the contribution of workers to its profitability.Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising?
 Explain your answer.

Accepted Answer

The answer of Explain how a firm values the contribution...

Question 4

Changes in supply and demand in the labor market will cause changes in wages.

Accepted Answer

When the demand for labor is greater than the supply, wages tend to increase as there are more job openings than available workers. Conversely, when there are more workers than available jobs, wages tend to decrease as workers are willing to accept lower pay to secure a job. Therefore, changes in supply and demand in the labor market can cause changes in wages.

Question 5

If the output price of a product rises,the demand for capital will increase,raising the rental price of capital.

Accepted Answer

When the output price of a product rises, the demand for capital increases because firms want to produce more of the product to take advantage of the higher price. This increased demand for capital raises the rental price of capital.

Question 6

Using the theory of wage determination,explain why wages in developing countries,where levels of capital are small,are typically quite low.

Accepted Answer

The answer of Using the theory of wage determination,explain why...

Question 7

An event that changes the supply of any factor of production can alter the earnings of all the factors.

Accepted Answer

If the supply of any factor of production changes, it can affect the prices of all the factors of production. For example, if the supply of labor increases, the wages of all workers may decrease due to increased competition. Conversely, if the supply of a particular skill or expertise decreases, the wages of workers with that skill may increase. Therefore, any change in the supply of a factor of production can affect the earnings of all other factors.

Question 8

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Accepted Answer

The answer of Describe the difference between a diminishing marginal...

Question 9

The marginal product of land depends on the quantity of land that is available.

Accepted Answer

The law of diminishing returns states that as the quantity of one input is increased, while other inputs are held constant, the marginal product of that input will eventually decrease. Therefore, as more land is added, the marginal product of land will eventually decrease.

Question 10

Capital income does not include income paid to households for the use of their capital.

Accepted Answer

Capital income includes income paid to households for the use of their capital, such as interest, dividends, and rent.

Quiz 18: The Market for the Factors of Production