Question : Any factor of production can earn economic rent when the supply is:
Option 1: perfectly elastic
Option 2: perfectly inelastic
Option 3: elastic in nature
Option 4: all of the above
Correct Answer: perfectly inelastic
Solution : The correct answer is perfectly inelastic .
Where supply is fully inelastic, any factor of production can generate economic rent. Economic rent is the remuneration received by a component of production that exceeds its potential cost. The value of the next best alternative use of the component of production is referred to as the opportunity cost. When a factor of production's supply is perfectly inelastic, the quantity provided does not fluctuate in response to price fluctuations. This signifies that the factor of production is limited and difficult to replace.
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