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 initially in equilibrium at point B.Assume that there is a decrease in the demand for widgets and a new equilibrium is established at point A.Which of the following statements about point A is true?
A)Total economic rent is $120.
B)The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor is $0.
C)The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the factor is $6.
D)Total transfer earnings are $120.
E)Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $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 initially in equilibrium at point B.Assume that there is a decrease in the demand for widgets and a new equilibrium is established at point A.Which of the following statements about point A is true?
A)Total economic rent is $120. 
B)The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor is $0. 
C)The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the factor is $6. 
D)Total transfer earnings are $120. 
E)Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $2.

Quizplus · Accepted Answer

The marginal revenue product of the 20th unit of the factor is $6, and since it is equal to the factor's wage at point A, the economic rent of the 20th unit is $0.

The Demand and Supply Curves Shown Below Apply to a Competitive