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Question
Macroeconomics
Posted 9 months ago
The firm Gambol and Japes produces and sells novelty hats in an oligopoly market and hires labor in a perfectly competitive labor market.
Which of the following statements must be true about the labor this firm hires?
Choose 1 answer:
(A) The marginal revenue product of labor equals the wage rate.
B The marginal product of labor equals the marginal product of capital.
(c) The firm chooses the wages it pays for labor.
D The marginal revenue product of labor equals the price of the good produced.
(E) The marginal factor cost of labor is greater than the wage rate.
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Answer from Sia
Posted 9 months ago
Solution
a
Perfectly Competitive Labor Market: In a perfectly competitive labor market, firms are wage takers, meaning they accept the market wage determined by the supply and demand for labor
b
Marginal Revenue Product (MRP): The MRP is the additional revenue a firm earns from hiring one more unit of labor. In a perfectly competitive labor market, a profit-maximizing firm hires workers up to the point where MRP equals the wage rate
Answer
(A) The marginal revenue product of labor equals the wage rate.
Key Concept
Marginal Revenue Product of Labor
Explanation
In a perfectly competitive labor market, firms hire workers until the marginal revenue product of labor equals the wage rate, which is the condition for profit maximization.
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