The Markets for Land and Capital - Section 13, Module 70

For land and capital, profit maximizing rule is the same as the rule for labor → MC of renting = MR generated by the extra units

Even if the land/equipment is already owned, there is implicit costs (opportunity costs) of the land/equipment because it could be used for different purposes - so cost can refer to implicit costs as well

Rental rate - The cost of renting a unit of land/capital for a set period of time

• can also the opportunity cost of using the land/capital instead of renting it out

MR and demand curves are downward sloping because of diminishing returns

Finding new supplies of land is typically difficult and costly - so its relatively inelastic

capital is usually easily paid by investors - relative elastic

When the supply of land/capital decreases, the marginal product and rental rate increase (because firms are willing to pay higher prices)

Equilibrium rental rate and quantity are found where supply = demand

equilibrium marginal revenue product of a factor - the addition revenue generated by the last unit of the factor employed in the entire market for that factor