In a perfectly competitive labor market:
A) the price of labor is equal to the MP of labor.
B) MFC is graphed as an upward sloping line.
C) the firm will maximize profits in the hiring of labor if it hires where MRP = MFC.
D) the price of labor and capital are equal.

Question

Quizplus · Accepted Answer

In a perfectly competitive labor market, firms will hire workers up to the point where the marginal revenue product (MRP) of labor equals the marginal factor cost (MFC) of labor. This is the point where the firm is maximizing its profits. Choice A is not necessarily true, as the price of labor may be influenced by factors outside of the labor market. Choice B is incorrect, as MFC is graphed as a horizontal line in a perfectly competitive market. Choice D is also incorrect, as the price of capital can differ from the price of labor in a perfectly competitive market.

In a Perfectly Competitive Labor Market