The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets. FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 30th unit of the factor is being paid transfer earnings of ________ and economic rent of ________.
A)$120; -$2
B)$16; $2
C)$7; $1
D)$210; $1
E)$6; $2

Question

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.  FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 30th unit of the factor is being paid transfer earnings of ________ and economic rent of ________.
A)$120; -$2 
B)$16; $2 
C)$7; $1 
D)$210; $1 
E)$6; $2

Quizplus · Accepted Answer

At equilibrium, the factor price is determined by the intersection of the demand and supply curves, which occurs at point B. At this point, the factor price is $7 and the quantity of the factor traded is 30 units. 
Transfer earnings are the minimum payment required to keep a factor in its current use, which is the opportunity cost of the factor's owner. At point B, the transfer earnings can be found by drawing a horizontal line from the supply curve to the vertical axis at the quantity of 30 units. This gives a transfer earnings of $1. 
Economic rent is the surplus payment above the transfer earnings that the factor's owner receives. At point B, economic rent can be found by taking the difference between the factor price and the transfer earnings. This gives an economic rent of $6. Therefore, the answer is C, with transfer earnings of $1 and economic rent of $6.

The Demand and Supply Curves Shown Below Apply to a Competitive