Chapter 70, Problem 4MCQ

To determine

How long a firm will continue to employ land?

Answer to Problem 4MCQ

From the available options, the correct option is equal to the rental rate.

Explanation of Solution

A firm will continue to employ more land until the value of the marginal product (VMP) for land is equal to the rental rate because up to this point, hiring one additional unit of land would add more to total revenue than its increase to the total cost which helps the firm to increase profits by using the land. But if the firm employs more land until the VMP is equal to zero, maximized, or equal to the marginal product of labor or the wage rate, then it is not possible for the firm to generate profits because its cost will increase more than its revenue.

Therefore, the correct option is c.

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.