A recent flood in the Midwest has destroyed much of the farmland that lies in fertile regions near the rivers. Describe the effect of the flood on the marginal productivity of land, labor, and capital. How would the flood affect the price of inputs? Provide some examples.
The flood would increase the marginal product of unflooded land, lower the marginal product of labor, and lower the marginal product of capital. As such, the price of unflooded land should rise, and the prices of both labor and capital should fall.
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