Question

1. Economic rents are typically counted as:

                economic costs but not accounting costs.

                accounting costs but not economic costs.

                accounting and economic costs.

                none of the above

2. Use the following statements to answer this question:

Markets that have only a few sellers cannot be highly competitive.

Markets with many sellers are always perfectly competitive.

• I and II are true.
• I is true and II is false.
• II is true and I is false.
• I and II are false.

Answer 1

Ans 1. Economic costs but not accounting costs.

Economic rent is any payment made to an owner or the factor of production in excess of the costs needed to bring that factor into production.

Economic rent = Marginal product - Opportunity cost

Ans 2. I is false and II is true.

Even if a market has a few sellers, it can be highly competitive. For example, we can take the example of Pepsi and Coca Cola (assuming all other brands are still in the market) in the beverages market where there are a few sellers but the market is highly competitive.

When there are a lot of sellers then it is most likely to have a perfectly competitive market.