# Mt 445 Managerial Economics, Unit 6 Project

Ury Salinas
Unit 1 Project
MT445 Managerial Economics

Chapter 11
Question 9 (opportunity Cost and Economic Rent) Define economic rent.
Economic rent can be defined as the payment which goes beyond that of the minimum wage which is paid towards labor in order to sustain the labor supply.
A. What are the equilibrium wage rate and employment level? What is the economic rent?
Equilibrium wage rate is point b on the graph and employment level is point f on the graph. Economic rent is the area which is bordered by points b, l and v.
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?
If the price of substitute resources increases, then the demand for labor increases and the demnd curve will go upward to D3. The new equilibrium wage rate is at point h, and the employment level is represented by point g. The economic rent would increase to the area bordered by points by points a, h and v.
C. Suppose instead that demand for the final product drops, other things constant. Using labor demand curve D1 as your setting 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?
If the demand for final product should drop, the demand for labor would go down as well. The market demand curve would shift down to D2. The new equilibrium wage rate would be at point c and the employment level at point e. Economic rent will decrease to the area bordered by point c, t and v.
Question 10 (Firm’s Demand for a Resource) Use the following data (p.269) to answer the questions below. Assume a perfectly competitive labor market.
A. Calculate the marginal revenue product for each additional unit of labor if output sells for \$3 per unit.
L MMP           MRP

1 7 21
2 6 18
3 5 15
4 4 12
5 3 9

B. Draw the...