In a perfectly competitive factor market, a firm finds that the marginal factor cost of a factor of production is:
A) greater than its price.
B) less than its price.
C) equal to its price.
D) unrelated to its price.

Question

Quizplus · Accepted Answer

In a perfectly competitive factor market, a firm is a price taker and so it faces a horizontal supply curve for a factor of production. Therefore, the marginal factor cost (MFC) of the factor will be equal to its price. This is because to hire an additional unit of the factor, the firm must pay the going market price and this additional unit will not affect the market price. Hence, MFC = price.

In a Perfectly Competitive Factor Market, a Firm Finds That