An industrial economist is evaluating the supply and demand conditions for two different factors of production. Factor 1: The demand curve is derived from the resource’s marginal revenue product in the current period. Factor 2: The supply curve is perfectly inelastic and the price is determined by demand. Which of the following choices most likely identifies these two factors of production? Factor 1 Factor 2 A) Labor Renewable resource B) Labor Non-renewable resource C) Machinery Renewable resource D) Machinery Non-renewable resource plz provide me reason as well…thanks…
Factor 1 must be labor. A company would buy labor as long as the marginal revenue product is greater or equal with the market wage. Factor 2 I say renewable resource. Is it A? I so hate economics!
Yes its A… Its very close call as B also might be right…
Good Question… I was between A & B… For a Renewable resource, even if it is used up supply remains constant. In other words supply is inelastic. A.
I was between A &C I’m pretty sure Factor 2 is a renewable resource. (If you will get more of that resource next period why not sell all of your current stock no matter what price) Could someone explain why Factor 1 is not machinery though? I thought all resource demand curves were determined by MRP. Thanks!
Supply curve for a non-renewable resource is fixed; demand of plays a key role in determining the equilibrium price level. For a renewable resource demand is more or less fixed, supply curve is used to determine the level of price.