The ABC Corporation is a profit-maximizing firm producing gadgets. ABC operates in a perfectly competitive goods, or product, market. ABC has a fixed number of laborers and rents a machine for a variable number of hours in a perfectly competitive factor market.

A) Draw side by side graphs of the factor market for machines and the ABC Corporation. All parts of the graphs should be labeled correctly. Be sure to show:

• The equilibrium rental price of machines is the factor market, labeled as Pm
• ABC's equilibrium rental quantity of machines, labeled Qf

B) Due to a rise in consumer income, the demand for gadgets increases. What will happen to each of the following?

• Marginal product curve for machine-hours
• Marginal revenue product curve for machine hours. Explain.

C) ABC is employing the cost-minimizing combination of inputs. The marginal product of labor is 50 gadgets per hour and the wage rate is $10 per hour. The marginal product of the machine is 160 gadgets per machine-hour. What is the hourly rental price of a machine?