Chapter 70, Problem 2CYU

To determine

The explanation of the statement that indicates when firms in different industries compete for the same land, then the value of the marginal product of the last unit of land rented will be equal among all firms even if they belong to different industries.

Explanation of Solution

An inter-industry land market will form ceteris paribus when companies from various industries compete for the same piece of land. Each piece of land used by a different industry would be rented out at the same equilibrium rental rate.

The value of the marginal product would also be equal to the rental rate for the last unit of the rented land, in accordance with the marginal productivity theory of income distribution. This occurs as a result of every industry renting a land unit up to the land's value of the marginal product (VMP) equals the rental rate.

And as a result, the value of the final unit's marginal product of land for each of these various sectors would be the same.

Economics Concept Introduction

Introduction: Marginal revenue is the earning or benefit which is obtained by using an additional unit of the product or factor of production.