(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%. What would we expect to take place? A) More output will be produced in the agriculture sector. B) Labor will migrate to the agriculture sector. C) More output will be produced in the manufacturing sector. D) The rental rate on capital will decline.

Question

Quizplus · Accepted Answer

With the increase in price of manufacturing goods, the manufacturing sector will become more profitable and will produce more output. The increase in wages may lead to a slight increase in costs, but the overall effect on production will be positive. There is no reason to expect labor to migrate to the agriculture sector or for the rental rate on capital to decline.

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