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(Opportunity Cost and Economic Rent) Define economic rent. In the graph below, assume that the market demand curve for labor is initially D1

(Opportunity Cost and Economic Rent) Define economic rent. In the graph below, assume that the market demand curve for labor is initially D1
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ECONOMICS

MT445 / MT 445
Managerial Economics
Kaplan University (KU Campus)

William A. McEachern
Economics: A Contemporary Introduction, 8e
Hoboken, NJ: John Wiley & Sons.

Unit 6: Labor Markets & Wages

Unit 6 Project
Chapter 11 – question 9, page 269
9. (Opportunity Cost and Economic Rent) Define economic rent. In the graph below, assume that the market demand curve for labor is initially D1.
a. What are the equilibrium wage rate and employment level? What is the economic rent?
b. Next assume that the price of a substitute resource increases, other things constant. What happens to demand for labor? What are the new equilibrium wage rate and employment level? What happens to economic rent?
c. Suppose instead that demand for the final product drops, other things constant. Using labor demand curve D1 as your starting point, what happens to the demand for labor? What are the new equilibrium wage rate and employment level? Does the amount of economic rent change?

 

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