(Table: Revenues and Costs for Two Industries) Suppose that the table gives payments to labor, land, and capital in the manufacturing and agriculture sectors. Now, suppose that the price of manufacturing goods increases by 10% (P_M), and wages increase by 5%; then the rental rate on land will: A) increase by 7.5%. B) decrease by 5%. C) decrease by 7.5%. D) not change.

Question

Quizplus · Accepted Answer

The rental rate on land is a residual factor payment, meaning that it is the difference between total revenue and payments to labor and capital. Therefore, the rental rate on land can be calculated as:

Rental rate on land = Total revenue - Payments to labor - Payments to capital

If the price of manufacturing goods increases by 10% and wages increase by 5%, then the new payments to labor and capital can be calculated as:

New payments to labor = 1.05 x 20 = 21
New payments to capital = 1 x 30 = 30

The total revenue for the manufacturing sector will also increase by 10%, so the new total revenue for the manufacturing sector can be calculated as:

New total revenue for manufacturing = 1.1 x 90 = 99

Substituting these values into the formula for rental rate on land, we get:

Rental rate on land = 99 - 21 - 30 = 48

Therefore, the rental rate on land will decrease by 7.5%:

Percentage decrease = (50 - 48)/50 x 100% = 4%

Hence, the correct option is C.

(Table: Revenues and Costs for Two Industries) Suppose That the Table