If the Payment to an Input Is Pure Economic Rent

question 129

Multiple Choice

If the payment to an input is pure economic rent, then reducing that payment will

• A)not influence the availability of the input.
• B)increase the quantity supplied of the input.
• C)decrease the quantity supplied of the input.
• D)decrease the demand for the input.

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Definitions:

Perfect Competition

A market structure characterized by a large number of small firms, homogeneous products, free entry and exit, and perfect information, leading to firms being price takers.

Diminishing Marginal Returns

A principle stating that as more of a variable input is added to a fixed input, the additional output from each new unit of input will eventually decrease.

Profit-Maximizing Output

The level of production at which a firm achieves the highest possible profit, where marginal cost equals marginal revenue.

Sergei's Profit

A hypothetical measure of earnings named for an individual, illustrating the net gain after subtracting expenses from revenue.