Business, 18.02.2020 23:26 calebabaltimore

In the long run in a perfectly competitive industry, price equals marginal cost and firms earn no economic profits. The following two equations describe this long-run situation for prices and costs, where the numbers indicate the amounts of each input (labor and land) needed to produce a unit of each product (wheat and cloth):
Pwheat = 60w + 40r
Pcloth = 75w + 25r
Suppose the price of cloth increases to 120. After computing the new equilibrium values for the wage rate and the rental rate, which below correctly reflects the relationship between the percentage changes in w, r, Pwheat, and Pcloth?

a) % change in w > % change in r > % change in Pcloth > % change in Pwheat = 0
b) % change in Pwheat = 0 > % change in w > % change in r > % change in Pcloth
c) % change in r > % change in Pcloth > % change in Pwheat = 0 > % change in w
d) % change in w > % change in Pcloth > % change in Pwheat = 0 > % change in r
e) None of the above

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In the long run in a perfectly competitive industry, price equals marginal cost and firms earn no ec...