The marginal factor cost in a perfectly competitive market:
A) is equal to the market price of the factor.
B) is less than the market price of the factor.
C) is greater than the market price of the factor.
D) increases with the quantity of input demanded.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the marginal factor cost is equal to the market price of the factor. This is because in a perfectly competitive market, buyers and sellers have no market power and the price is determined by the market forces of supply and demand. Therefore, a firm can hire an additional unit of input at the prevailing market wage rate without affecting the market wage rate.

The Marginal Factor Cost in a Perfectly Competitive Market