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Pricing Factors of Production & Economic Rent

Three machines are employed in an isolated area. They each produce 2,000 units of output per month, the first requiring $20,000 in raw materials, the second $25,000, and the third $28,000. What would you expect to be the monthly charge for the first and second machines if the services of the third machine can be hired at a price of $9,000 per month? Which parts of the charges for the first two machines are economic rent?

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The third machine costs a total of $28,000 + $9,000 to run, or $37,000. The prices of the other two machines will be bid up so their use provides no additional advantage, even though they are ...

Solution Summary

Calculation of the expected monthly charge for equipment based on costs of operation.