Chapter 17: Problem 4

The rent on a particular piece of land is based on (LO1) a) the supply of land b) the buildings located on that land c) the MRP schedule of the highest bidder d) the MRP schedule of the lowest bidder

Short Answer

Expert verified

The rent on a particular piece of land is based on \( \textit{c) the MRP schedule of the highest bidder} \) as they will be the one who values the land the most and is willing to pay the highest price for it. This answer is superior to the other options because it directly addresses the main determinant of rent on a specific piece of land.

Step by step solution

Identifying the correct answer

In this case, the correct answer is (c) the MRP schedule of the highest bidder. This is because the highest bidder is the one who values the land the most, and their willingness to pay the highest price for it determines the rent that will be charged for the land.

Explaining the concept of MRP

MRP, or Marginal Revenue Product, is a concept used in economics to represent the additional revenue a firm can generate by employing one more unit of a factor of production, such as labor or land. In this context, the MRP schedule refers to the range of values that different potential tenants associate with the land being rented.

Eliminating the other options

(a) The supply of land certainly influences the market price for land, but does not determine the rent on a specific piece of land. Landowners will still rent out their land to the highest bidder, which is determined by the MRP schedule. (b) The buildings located on the land may affect the MRP schedule of potential tenants because the buildings may add or detract value, but they do not directly determine the rent. The rent will still be determined by the MRP schedule of the highest bidder. (d) The MRP schedule of the lowest bidder will not determine the rent on the land because landlords will rent their land to the tenant who is willing to pay the highest rent.

Concluding the explanation

Consequently, the rent on a particular piece of land is based on the MRP schedule of the highest bidder, as they will be the one who values the land the most and is willing to pay the highest price for it. This answer is superior to the other options because it directly addresses the main determinant of rent on a specific piece of land.

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