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Suppose that unskilled workers find it worthwhile to acquire skills when the wage differential between skilled and unskilled workers reach a certain threshold. Explain the effects on the supply of unskilled workers, the supply of skilled workers, and the equilibrium wage for the two groups. In particular what is the equilibrium wage of skilled workers relative to unskilled workers after some unskilled workers receive training

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Answer:

a. Short-run economic profit: $  40,000  per lease.

Long-run economic profit: $  0  per lease.

b. Landowners would gain $40,000 per plot each year due to higher rent for land

Explanation:

The short-run economic profit for a cotton farmer is:

Economic profit = Total revenue - Explicit costs - Implicit costs = $60,000 - $14,000 - $6,000 = $40,000 per lease.

Landowners would reap the long-term benefits of the scheme. Their income would rise by $40,000 per year per 120-acre plot because rent would rise from $10,000 to $50,000.

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