CONNECT F/MICROECONOMICS
21st Edition
ISBN: 2810022151240
Author: McConnell
Publisher: MCG
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Question
Chapter 18, Problem 2DQ
To determine
Different perspectives of land rent.
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Consider the figure to the right. Suppose that Q₁ = 8 acres and P₁ =
$1,700 per acre. What is the dollar amount of economic rents received
during the current period, and why is this amount classified as
economic rents?
The dollar amount of economic rents received during the current period is
$
(Enter your response as a whole number.)
C
Price per Unit
P1
E1
Q1
Quantity of Land
S
D
E
Explain the following statement: “Profits that more than cover the cost of capital are known as economic rents.”
How does the economist’s use of the term “rent” differ from everyday usage? Explain: “Though rent need not be paid by society to make land available, rental payments are useful in guiding land into the most productive uses.”
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- Explain The equilibrium in the market for capitalarrow_forwardQUESTION 1: When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000 tractor-trailer-rig. Recently, Burton was boasting some follows truckers that his revenues were typically $35,000 per month, while his operating costs (fuel, maintenance, and depreciation) amounted to only 18,000 per month. Tractor trailer rigs identical to Burton's rig rent for $15,000 per month. If Burton was driving for one of the competing trucking firms, he would earn $5,000 per month. All underlying work must be shown. A) How much is Burton's accounting cost? a) $18,000 b) $35,000 c) $33,000 d) $20,000 B) How much is Burton's economic cost? a) $18,000 b) $38,000 c) $20,000 d) $55,000 C) How much is Burton's economic profit? a) $17,000 b) $20,000 c) -$3,000 d) $15,000 D) What should Burton do? Should he stay in his trucking business or rent the rig and start working for the competing trucking company? Briefly explain. E) What is the minimum Burton should earn…arrow_forwardState whether the following is true or false Pure economic rent occurs when the opportunity cost of a resource is zero and there is a positive price for that resources in the marketarrow_forward
- Refer to the diagram to the right: Land is the other (fixed) factor of production. Currently the real wage is $15. Calculate the change in land rents due to a $5 increase in the real wage. A Land rents = $. (Enter your response rounded to the nearest dollar. Be sure to include the minus sign if necessary.) 60- 55- 50 45- 40- 35 30- 25- 20- 15- 10- 5- 0+ 0 Marginal product of labor, MPL 10 Real Wage Real Wage MPL 20 30 40 50 60 70 80 90 100 110 Labor, Larrow_forwardWhat is the difference between interest and profit? Who earns interest, in return for what contribution to production? Who earns economic profit, in return for what contribution to production?arrow_forwardLoessing Compan produced and sold 12,000 units last year with sales price of $45 per unit and unit variable cost of $20. Fixed costs totaled $250,000. In the coming year, Loessing expects price to decrease by ten percent. Neither unit variable cost nor fixed costs can be changed. If Loessing wants to maintain the same level of income, what will the new level of production need to be?arrow_forward
- A Farmer‘s production function Y =100 × 1. Among farmer's ownership, fixed land rental & sharecropping, the farmer will put the highest level of effort into his land under ______, the farmer will make the highest amount of investment under _____, the farmer will more likely to borrow from the bank under ______. 2. Assume the rent per year under fixed land rental is 500, how much profit could the farmer make by the end of the year? ______ 3. Assume the rent per year under sharecropping is 10% total output, how much profit could the farmer make by the end of the year? ________ 4. What are some of the important factors behind farmers' investment incentives? _______arrow_forwardAnswer questions no. 1 and 2. 1. Imagine yourself to be the owner of a large tract of agricultural land. You want the land to be productive, but then you have no idea how to farm. A landless farmer approached you and discussed with you the possibilities of him tilling your farm. What kind of economic/financial arrangement do you think would be appropriate for both of your benefits from the relations? Possible arrangements include: A. Employment of the farmer to be paid a fixed monthly wage B. Proportionate sharing of costs and profit C. Landowner bears all costs of farming implements and gets a bigger share of the profits D. Other options. Would you please elaborate your answer 2. Reverse the scenario, this time, you are the farmer. The same question and options apply. Which do you choose? Clarify your response.arrow_forwardConsider a firm that borrows to invest in production of capital goods. Let's say the production function is given by: Y = 2AK!/2 where, K is physical capital borrowed and A is 'technology'. From what we have learnt, the 'real' profit function of this firm would be given as II=Y-(r+ô) K, where r and õ respectively represents the real interest rate and depreciation rate on capital. Given this: a) Find the firm's optimal demand for capital K*. b) Given the optimal demand for capital what is firm's profit II*? c) Given your answer to part a) above, explain intuitively the observed relationship between K* and A, r and ô?arrow_forward
- Land Rent ($) A 0 D₁ D₂ D₂ D₁ Acres of Land Which of the following statements is true of land as shown in the diagram? A. It would be a free resource in the case of all four demand curves. B. It would be an economic (scarce) resource in the case of all four demand curves. C. It will cease to be used in production if demand falls below D4. D. It would be a free resource if demand is D4 or less.arrow_forwardA firm uses two inputs in production: capital and labour. In the short run, the firm cannot adjust the amount of capital it is using, but it is able to adjust the amount of labour it employs. What happens to the firm's average-total-cost curve, the average- variable-cost curve, and the marginal-cost curve when: a. the cost of renting capital increases? b. wages increase?arrow_forwardEconomists Conclude that a tax on the revenues of firms will be shifted in part to consumers of the products of those firms in the form of higher prices. However, they believe that a tax on the rent of land usually cannot be shifted and must be paid entirely by the landlord. What explains the difference?arrow_forward
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