For a firm buying factors of production in a perfectly competitive factor market:
A) factors are hired where marginal revenue product is less than marginal factor cost.
B) its marginal revenue product curve for a factor is its factor demand curve.
C) the price of a factor will be greater than its marginal revenue product.
D) the price of a factor will be less than its marginal factor cost.

Question

Quizplus · Accepted Answer

In a perfectly competitive factor market, the firm's marginal revenue product (MRP) curve is also its factor demand curve. The firm will hire factors up to the point where MRP equals the factor's price (which is equal to its marginal factor cost in perfect competition). Therefore, the firm will hire factors where MRP equals the factor price, not where MRP is less than marginal factor cost (A), and the price of a factor will not be greater than its MRP, but equal to its marginal factor cost (C) and greater than its marginal revenue product (D).

For a Firm Buying Factors of Production in a Perfectly