In the factor market for land,equilibrium rental prices will be _____ the value of marginal product of land.

Question

Quizplus · Accepted Answer

In the factor market for land, equilibrium rental prices will be equal to the value of marginal product of land. This is because in the long run, competitive markets ensure that factors of production are paid their marginal product. If rental prices were less than the value of marginal product, then firms would demand more land than is available, leading to a shortage of land. On the other hand, if rental prices were greater than the value of marginal product, then firms would not be willing to rent the land, leading to a surplus of land. Therefore, the equilibrium is where rental prices are equal to the value of marginal product of land.

In the Factor Market for Land,equilibrium Rental Prices Will Be