In a perfectly competitive labor market, the price of a resource to a firm is the same as the firm's marginal factor cost.

Question

Quizplus · Accepted Answer

In a perfectly competitive labor market, the price of a resource (in this case, labor) is determined solely by the market supply and demand forces. Therefore, firms will hire labor up to the point where the marginal revenue product (MRP) of labor equals the wage rate (the price of labor). Since under perfect competition, the marginal revenue product is equal to the marginal factor cost, the price of labor to the firm is equal to its marginal factor cost. Hence, the statement is true.

In a Perfectly Competitive Labor Market, the Price of a Resource