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!!作者: ishfaque 时间: 2011-7-11 18:42
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.
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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.作者: bapswarrior 时间: 2011-7-11 18:42
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.
