Use the following information to answer the questions below:
Manufacturing : Sales = 100 Payment to labor = 60 Payment to capital = 40
Agriculture : Sales = 100 Payment to labor = 50 Payment to capital = 50
Holding the price of manufacturing constant, suppose the increase in the price ofagriculture is 10% and the increase in the wage is 5%.
a. Determine the impact of the increase in the price of agriculture on the rental onland and the rental on capital.
b. Explain what happens to the real rental on land and the real rental on capital.