Econ - cmon..... statements, following, midnight, compare, correct

aurific

1st of all how the hel are u supposed to pass this exam if they keep you at work till midnight. with that being said i think im fried coz i cant figure this one out.

can someone please dumb this down:

Are the following two statements about the marginal revenue product (MRP) of a factor of production correct?

Statement 1: In a price taker market, the MRP of an input is the marginal product of the input multiplied by the price of the output it generates.

Statement 2: If we compare any two productive inputs, the one with the higher MRP will earn greater economic rent.

Statement 1 Statement 2


A) Correct Incorrect


B) Incorrect Correct


C) Correct Correct


Gracias!!

ishfaque

i guess it has to do with the supply curve - i remember the book talking about how frasier ( K. Grammer) earned millions for 1/2 hr of work. the difference between this wage and what he would earn in his next best job (opportunity cost) is economic rent.
.
.
so in our choices A) is saying that the one with the higher MRP WILL earn a higher economic rent, this is possible but not necessarily if the factor of input is easy to come by (supply.)

sheesh.....here you go:

Statement 2 is incorrect. The extent to which a factor of production earns economic rent depends on the shape of its supply curve. An input with a high MRP might earn very little economic rent if the supply of the input is highly elastic. An input with a relatively lower MRP can earn significant economic rent if its supply is highly inelastic.

bapswarrior

I had this question marked for review, thanks for the input. I took a look back o the K. Grammer example and it suddenly rushed back to me....put that one in the bank.