Table: Revenues and Costs for Two Industries
Manufacturing
Sales revenue =P<sub>M</sub>Q<sub>M</sub>= $100
Payments to labor =W?L<sub>M</sub>= $70
Payments to capital =R<sub>K</sub>?K= $30
Agriculture
Sales revenue =P<sub>A</sub>Q<sub>A</sub>= $100
Payments to labor =W?L<sub>A</sub>= $60
Payments to capital =R<sub>T</sub>?T= $40
Suppose that the table gives payments to labour, land, and capital in the manufacturing and
agriculture sectors. Suppose further that the price of manufactured goods increases by 10%
(P<sub>M</sub>) and wages increase by 10%; then, if the quantities of output, labour and capital do not
change in the manufacturing sector, the rental rate on capital will:
Select one:
a. decrease by 16%.
b. increase by 21.67%.
c. increases by 10%.
d. decrease by 21.67%.