The demand and supply curves shown below apply to a competitive market for a factor in the production of widgets. FIGURE 13- 5
-Refer to Figure 13- 5. 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) Total transfer earnings are $120.
C) 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.
D) 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.
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 in the production of widgets.  FIGURE 13- 5
-Refer to Figure 13- 5. 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) Total transfer earnings are $120. 
C) 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. 
D) 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. 
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 equals the factor's wage, the economic rent is $0.

The Demand and Supply Curves Shown Below Apply to a Competitive