The price paid by a firm for a factor of production in a perfectly competitive market:
A) increases with the quantity of input demanded.
B) decreases with the quantity of input demanded.
C) is equal to the market price of the factor.
D) is less than the market price of the factor.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the price paid by a firm for a factor of production is determined by the market forces of supply and demand. The firm is a price taker and must accept the prevailing market price. Therefore, the price paid by the firm is equal to the market price of the factor, as stated in option C. Options A, B, and D are incorrect as they suggest that the price paid by the firm varies with the quantity of input demanded, which is not the case in a perfectly competitive market.

The Price Paid by a Firm for a Factor of Production