Printed Page 704(cont.)

Tackle the Test: Free-Response Questions

  1. Question

    Refer to the table below. Assume that the price of the product is $10 and the rental rate for capital is $100 per unit.













    Quantity of capital (units) Quantity of output


    1. 0



    2. 1



    3. 2



    4. 3



    5. 4



    6. 5



    7. 6





    0


    30


    55


    70


    78


    85


    89





    1. What is the MRP of the 2nd unit of capital?



    2. Will the firm employ the 2nd unit of capital? Explain.



    3. How many units of capital will the firm hire? Explain.

    Rubric for FRQ 1 (5 points)

    1 point: MRP = 25 × $10 = $250

    1 point: Yes

    1 point: Because the MRP of $250 is greater than the rental rate of $100

    1 point: 3

    1 point: Because the MRP exceeds the rental rate for the first 3 units

  2. Question

    Draw a correctly labeled graph for a land market in which land is in fixed supply. Label each of the following on your graph: the axes, the supply and demand curves for land, the equilibrium rental rate, and the equilibrium quantity of land employed. Shade and label the area that represents economic rent. (5 points)

    Rubric for FRQ 2 (5 points)

    1 point: The vertical axis is labeled “Rental rate” and the horizontal axis is labeled “Quantity of land.”

    1 point: The land supply curve is vertical and labeled “ Sland.”

    1 point: The land demand curve is downwardsloping and labeled “Dland” or “MRPland.”

    1 point: The equilibrium rental rate and the equilibrium quantity of land are labeled in the correct locations along the axes.

    1 point: The area that represents economic rent is shaded and labeled.

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