Consider Two Resource Markets in Which the Demand Curves Slope

question 83

Multiple Choice

Consider two resource markets in which the demand curves slope downward.In market A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource are hired.In market B, the supply curve is vertical, equilibrium price is $20, and 30 units of the resource are hired.Which of the following is true?

• A)All of the resource earnings in market A are economic rent.
• B)All of the resource earnings in both markets are economic rent.
• C)All of the resource earnings in market B are economic rent.
• D)None of the resource earnings in either market is an opportunity cost.
• E)None of the resource earnings in either market is economic rent.

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Definitions:

Salvage Recovered

The amount of money or value received from selling off the remains of assets after their useful life is over or after a casualty loss.

Discount Rate

Used to calculate the present value of future cash flows, reflecting the opportunity cost of capital investment.

Cost Savings

The reduction in expenses achieved by employing more efficient methods or making favorable decisions.

Salvage Value

An asset's anticipated market value upon concluding its period of utility.