test 2 pt 3

Question 1

How the Rental Price of Land Is Determined:

-Firms decide how much land to rent by
-The rental price of land adjusts to

Answer 1

comparing the PRICE with the VALUE of the marginal product (VMP) of land.

balance supply and demand for land.

Question 2

How the Rental Price of Capital Is Determined:

-Firms decide how much capital to rent by
-The rental price of capital adjusts to

Answer 2

comparing the price with the value of the marginal product (VMP) of capital.

balance supply and demand for capital.

Question 3

Rental and Purchase Prices

• Buying a unit of capital or land yields a ….
• The rental income in any period equals
• Hence, the equilibrium purchase price of a factor depends on both the …

Answer 3

stream of rental income.

the value of the marginal product (VMP).

current VMP and the future VMP

Question 4

factors of production are used together in a way that makes each factor’s productivity dependent ….

Answer 4

on the quantities of the other factors.

Question 5

It states that:
- factor prices determined by …
- each factor is paid the value of its ….

Answer 5

supply and demand
marginal product

Question 6

Captital graph:

𝓾
U
L

Answer 6

of ppl

unemplyment rate
# of ppl
labor force

y= price/ rent
x= K (capital)

Question 7

Land graph

Answer 7

y= price/ rent
x= T (terrian/ land)

-relatively inelastic
-price determines decision